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