HUDCO Tax Free Bonds-Sep/Oct-2013 (Tranche-I)-You should invest


HUDCO Tax free bonds-September,October-2013 (Tranche-I)HUDCO Tax Free Bonds-September/October-2013 (Tranche-I)-You should invest

It’s a celebration time for investors. Generally tax free bonds would be issued during Feb/Mar of every financial year. However after REC tax free bonds issue in September, 2013, HUDCO is planning to issue Tax free redeemable non-convertible debenture (NCD) bonds of Tranche-I for this financial year in next 2 days. The interest rates are as high as 8.76% per annum and they are tax free. There are good reasons why you should invest in such HUDCO Tax Free bonds of September, 2013 issue. In this article, I would indicate about its features and positive factors of HUDCO Tax free bonds and how they score high in comparison with REC tax free bonds issue which is going on currently.

About HUDCO

Housing Development Corporate Ltd (HUDCO) is a public sector company. HUDCO provides long term finance for construction of houses for residential purposes or finance or undertake housing and urban development programmes in the country. HUDCO is planning to issue tax free bonds for Rs 750 Crores with an option to retain Rs 4,809.2 Crores in this Tranche-I for this financial year.

Also read: KTDFC (Govt owned) – FD Scheme offers 12.91% yield – You can invest

Features of HUDCO Tax Free Bonds (Tranche-I) September/October, 2013

  • Issue start date: 17-Sep-2013
  • Issue end date: 14-Oct-2013
  • Face value of the bond is Rs 1,000.
  • Minimum investment – 5 Bonds i.e. Rs 5,000 and in multiple of 1 bond there-of
  • Interest rates and tenure are - 10 Years – 8.39%;   15 years – 8.76%;   20 years – 8.74%;
  • Non retail investors would get interest rate of 0.25% lower than the retail investor.
  • 40% is reserved for Residential Indian individuals and 30% for HNI, 20% for Non Institutional investors and 10% for QIB’s. HNI’s include NRI’s also.
  • HUDCO tax free bonds interest is paid annually.
  • There is no tax on the interest from these bonds, hence no TDS would be deducted.
  • Registrar for this issue is Karvy Computer Share Pvt. Ltd
  • These Tax free bonds would be listed in BSE and NSE. Hence these are liquid investments.
  • Non-Resident Indians (NRI’s) can invest in these HUDCO Tax free bonds of September, 2013 Tranche-I issue. They can invest in repatriation or non-repatriation basis.
  • You can apply in demat form or physical form.
  • You can download the prospectus at this link : http://www.hudco.org/writereaddata/HUDCO%20Bonds_2014_Prospectus_Tranche_I.PDF

Below is the Interest rates chart along with pre tax returns for individuals on various tax brackets.

HUDCO Tax free bonds Sep,Oct-2013 (Tranche-I)

Why to invest?

  • HUDCO is a public sector company and it is safe to invest.
  • Attractive tax free returns up to 8.76%. If you are in high tax bracket of 30%, your pre-tax return works out to be 12.68%. Currently banks are offering 9% interest rates (pre-tax). Similarly if you are in 20% tax bracket, your pre-tax return works out to be 11.03%. Hence these bonds offer good interest rates for such high tax bracket individuals.
  • CARE has rated “CARE AA+” to this tax free bonds issue. IRRPL rated these bonds as “IND-AA+”.
  • Last issue (Feb/Mar-13) from HUDCO tax free bonds had interest rates of 7.8%. This is a good opportunity to get 8.76% interest rates.

Why not to invest?


HUDCO Tax free bonds are rated as "AA+". However recent REC tax free bonds issue was rated as "AAA". This is one negative point for HUDCO tax free bonds.

How to apply?

Since these are issued through demat form, you can apply through your broker where you are maintaining demat account. Alternatively if you do not have demat account, you can apply through physical form by downloading application from HDFC Bank or Axis Bank site etc. or visiting their branches. I feel it is better to apply through demat account for easy liquidity.

Also read: ways to save income tax for salaried employees in India

HUDCO Tax free bonds (Sep-2013) Vs REC Tax free bonds (Sep-2013)

Credit rating: Though both are government enterprises, REC tax free bonds have been rated as AAA. However HUDCO tax free bonds are rated as “AA+”. This could be one reason that HUDCO interest rates are high. However since both are government enterprises, I don't see any risk.

Interest rates: HUDCO tax free bonds offer 8.76% interest where as REC tax free bonds interest rates are 8.71% for 15 years period.

Conclusion: HUDCO Tax Free bonds provide good returns for long run for high tax bracket individuals. There is no reason why you should not apply for these tax free bonds. Since the interest rates are high and that too the returns are tax free, you should invest in these tax free bonds.

If you enjoyed this article, share this article with your friends and colleagues through Facebook and twitter.

Suresh
HUDCO Tax Free bonds-September/October-2013 (Tranche-I)


Article by Suresh

Suresh KP i.e. me have written 400+ articles on this blog. I love doing analysis and identifying the Best investment options.

27 Comments

  1. kirupa says:

    HI,

    Your blog is superb. Nice and keep going, it will reach wider. 

    My questions, Is there any bonus be paid at maturity of this HUDCO bonds? Is there any TDS? Is it beneficial than IIFL Home bond?

    Pl. Suggest. Thanks. 

    • Suresh KP says:

      Hi Kirupa, there is no maturity bonus. You would get your capital back at maturity along with interest for that last year. If you take in demat account, there is no TDS deducted on interest. See our analysis on IIFCL bonds Vs HUDCO tax free bonds.

  2. TEJAS says:

    Is there any tax applicable on hudco bond at time of maturity? From your article it is clear that interest payable annually is tax free, but suppose I purchase rs. 5 l bonds, any tax on maturity amount after 15 or 20 years?

  3. ganesh says:

    Hi,

    I have icicidirect demat, and have applied for these bonds. I now want to purchase some more bonds for my wife, who does not have any demat account. Can she apply physically with my demat account number? Will the bonds be credited to my account? If so, where will the interest be credited (thru check as she is applying physically, or is it to my bank account associated to my icicidirect)? Your suggestions are much appreciated. 

     

    • Suresh says:

      No Ganesh. If she want to apply seperately, you should follow the manual route i.e. fill the application and prepare a cheque and deposit at collection centres.

  4. smitha says:

    Hi,

    Regarding MF's ,one knows that some are meant for short term, others for long  term wealth accumulation etc. For instance, diversified can be used for 7-10 year goals while liquid debt funds are for less than a year goals. Can you please write an article on the various types of MFs and their utility,over which period?ie stability, safety etc?

    Smitha

  5. sithara says:

    Hi,

    I just read your article on 10 short term investment options.Thank you so much for the suggestions.

    Regarding the dept funds,ultrashort term & gilt funds, would you suggest investment thru SIPs or lump sum investments. If by SIP what would the optional amt per month be?

    Thank you

    Sithara

    • Suresh says:

      Sithara, All these can be investd in SIP or thru lump sum. Both are good ways. It depends on how much you can invest. You can start investing from Rs 1,000 onwards per month in each scheme.

  6. sithara says:

    Hi,

    I hope we can expect a detailed and revealing article on the best FMPs from you very soon.

    On browsing Finanacial planning sites, one is adviced to marry investment instrruments to goals. I 2 of my goals are for 1.5 crores in 4 years and the other for 3-4 crores in 10-11 years time. Does that mean that I  should have seperate SIP portfolios, along with other instuments for both? That would make more sense.

     

    While we are on the subject, can you please suggest a SIP porfolio of MF's -international and national- that will help me get nearer the target of 1.5 crores in 4 years time, with FD's and FMps also  helping  along?!Should I include any other instrument in the mix?

    Sithara

    • Suresh says:

      Hi Sithara. Here are my comments 1) Yes, will do as and when there are new FMP which I feel they are better investments 2) Yes, it is always good to marry investments Vs Goals. Matching SIP’s with your investment goals would be better way to track 3) Don’t create any SIP Mutual fund investments for short term as you would not see any good returns. If you are serious investor to invest for 8 to 10 years, then only invest in mutual funds. Investing in HDFC Top-200, Birla SL Frontline, HDFC Prudence, ICICI Pru Blue chip focussed fund, Reliance equity ops fund are some of the good funds to invest.

  7. sithara says:

    Hi,

    Do you have any information on the FMP's to be launched during Oct-Dec this year? Can you suggest the best amongst them based on past performance? 

    is investing in HDFC prudence through SIP for  a3-4 year period a good option?

    sithara

    • Suresh says:

      Hi Sithara, There are several FMP’s getting launched every week, hence it would be difficult to review all of them. But I would keep this in mind and recommend few in coming months. Regd HDFC Prudence, this is hybrid fund. You should invest in equity and hybrid funds only for long term, else you would regret later on. If you are looking for 3-4, invest in debt funds like SBI Dynamic bond fund or IDFC Dynamic funds which are good funds.

  8. smitha says:

    Hi Suresh,

    Following up on my question, will depositing a lump sum in FMP's help?

    I know you dont recommend SIP's in equities-but how about dollar SIPs such as ICICI Pru US bluechip, JP Morgan US Value etc?

    Smitha

  9. Priyajit says:

    Hii Suresh

    I have one query regarding this.Suppose I purchase 100 bonds for 15 yrs.So after 15 yrs will the face value of 100 bonds i.e 100000/ automatically be refunded to my demat account or I have sell it??

    • Suresh says:

      Priyajit, At maturity, these demat account units would be taken back and amount would be credited to your bank account. If you have applied by physical method, they would send cheque to your address.

  10. Smitha says:

    Hi Suresh,

    COngratulations on the superb blog that you have hereand on the correct  and reliable info that you give to your readers. I chanced upon it accidentally and has been reading it regularly since then.

    i would like to have your advice on investing for my daughter who is almost 14 now.She intends to go for medicine and since the seats are costly, we will be needing around 1-1.25 crores for the seat in 2017 . What are the best Children schemes-insurance or otherwise , like SBI scholar that are in the market? The best Children MF's?

    Smitha

    • Suresh says:

      Smitha, Thanks for your positive feedback. There are no good child MF’s. All mutual fund which are intended for child plans are giving less than bank interest. I would not recommend anything from them. However your investment tenure only 4 years from now, which is short term. Hence my suggestion for you is to invest only in bank FD or post office saving schemes or debt mutual funds (where the returns would be higher than bank or Post office FD). You can invest in SBI Dynamic bond fund or IDFC Dynamic bond fund which are debt mutual funds which gives around 8% to 11% and these are good investment with low risk.  If you like our blog, click on facebook like button and share couple of articles to your friends which you feel they are good and would be helpful for your friends.

  11. Pooja says:

    HI Suresh,

    How is the interest paid annually in these HUDCO bonds?

    • Suresh says:

      Pooja, Interest is paid annually to your bank account (if applied thru demat account) and cheque if applied for physical form. For physical form, you need to provide cancelled cheque so that interest or refund would be credited to that account

  12. murali says:

    Dear Mr Suresh, Your expert opinion sought on tax implications on the following:  An individual who is now at 20% tax slab, investing now in Tax free bonds(15 years)  and secured NCDs (Muthoot & the likes – 3 to 6 years)

    a) If the same person who is getting retired in Sep.14

    b) His investments to be modified –  as sr citizen after Sep.14

    c) Besides Postal MIS and Postal Term Dep, any other source for investment  either now or after Sep.14 without taxable.

    thanks & regards

    murali

    • Suresh says:

      Hi Murali. Here are the observations.You should see what would be the tax slab from Sep-2014. If the person still falls under 20% tax slab, this is still benefitial. If he falls under < 10% slab or zero tax slab, then better to invest in bank FD or Post office MIS schemes.

  13. Dipika says:

    Is there a Cumulative option for the interest?

  14. rajivahuja says:

    Nice analysis.

Leave a Reply

Your email address will not be published. Required fields are marked *