7.6% PFC Tax Free Bonds Oct 2015 – Should you invest?
PFC Tax Free Bonds-Sep/Oct-2015
NTPC Tax Free Bonds of 2015 got oversubscribed by 11 times. Now it is the turn for PFC Tax Free Bonds of Oct-2015. PFC Tax Free Bonds would open for subscription on 5th October, 2015. PFC Ltd Tax Free Bonds carry 7.6% tax free interest for 20 years bond. It offers 10, 15 and 20 year tax free bonds. PFC bonds issue size also is Rs 700 Crores like NTPC. Should you invest in these Power Finance Corporation (PFC) Tax Free Bonds of Oct 2015? What are the positive factors of PFC Tax Free Bonds of October 2015? Are there any hidden or negative factors in these tax free bonds? What is the PFC Tax Free Bonds Price?
About Power Finance Corporation (PFC) Ltd
Power Finance Corporation Limited is a leading financial institution in India focused on the power sector. It also plays a strategic role in the GoI’s initiatives for the development of the power sector in India. It works closely with GoI state Governments and power sector utilities, other power sector intermediaries and private sector clients for the development and implementation of policies and structural and procedural reforms for the power sector in India. In addition, PFC is involved in various GoI programs for the power sector, including acting as the nodal agency for the UMPP program and the IPDS/R-APDRP and as a bid process coordinator through its wholly owned subsidiary PFC Consulting Limited for the ITP scheme.
Features of PFC Tax Free Bonds of October 2015
- Issue start date: 5-Oct-2015
- Issue end date: 9-Oct-2015
- Face value of the bond is Rs 1,000. PFC Tax Free Bonds Price is Rs 1,000 like any other tax free bond.
- Minimum investment – 5 Bonds i.e. Rs 5,000 and in multiple of 1 bond thereof
- Interest rates for PFC Tax Free Bonds and tenure (For Retail investors of < Rs 10 Lakh investment)
- 10 Years – 7.36%
- 15 years – 7.52%
- 20 years – 7.6%
- Non-Resident Indians (NRI’s) can invest in these tax free bonds of PFC of September/October, 2015. They can invest on repatriation basis or non-repatriation basis. NTPC tax free bonds of 2015 had condition to invest in non-repatriation basis only.
- Retail who are applying above Rs 10 Lakh investment + NRI investors who are applying for bonds would get 0.25% less interest compared to the rates indicated here.
- Non retail investors would get an interest rate of 0.25% lower than the retail investor.
- Interest is paid every year.
- There is no tax on the interest from these bonds, hence no TDS would be deducted.
- These tax free bonds would be listed on BSE only. Hence these are liquid investments, provided there is buyer in stock exchange.
- You can apply for these tax free bonds in physical form and demat form.
Below are the Interest rates chart along with pre tax returns for individuals with various tax brackets.
Why should you invest?
- PFC is Govt of India enterprise and it is safe to invest in such bonds.
- Attractive tax free returns up to 7.6% per annum for 20 years bond. If you are in a high tax bracket of 30%, your pre-tax return works out to be 11%. Currently banks are offering 8% interest rates (pre-tax). Similarly if you are in the 20 % tax bracket, your pre-tax return works out to be 10.9%. Hence these bonds offer good interest rates for such high tax bracket individuals.
- ICRA rated these bonds as ICRA AAA (Stable), CRISIL as AAA and CARE as AAA (Triple A).
Why not to invest?
- Last year tax free bonds offered 8%+ tax free interest. Compared to them, interest rates offered for current bonds is very low.
- There are a few tax free bonds which are available in the secondary market at discounted price where you can look them for alternative investment option.
- There are better investment options like equity mutual funds which can give you 12% to 15% annualised returns if you are able to take risk.
- Not that good investment option for low income tax bracket individuals.
How to invest in these PFC Tax Free Bonds?
These are issued through demat form or physical form. In case of demat form, you need to apply through your broker where you are maintaining demat account. Just login to your demat account and under BONDS section you should be able to see a link on the start date of opening of subscription of these PFC Tax Free Bonds of 2015. In case you want to apply in physical form, you can visit Edelweiss Financial Services website and download PFC Tax Free Bonds Prospectus and application form at this link and follow the process.
Conclusion: Like I indicated in NTPC tax free bonds analysis, banks are now offering very low interest rates of 8%. If you are in 30% tax bracket, your post tax returns would be 5.6% only. Similary if you are in 20% tax bracket, your post tax returns would be 6.4% only. Hence comparing to them, PFC Tax Free Bonds which offers 7.6% interest rates for 20 years is good investment bet. If you are long term investor and want to get highest tax free returns along with safety, you should invest in PFC Tax Free Bonds of Sep/Oct-2015. If you observe, NTPC tax free bonds offered 7.62% whereas now PFC tax free bonds is offering highest of 7.6%. Going forward, we would observe that interest rates may keep reducing in coming tax free bonds issues in 2015-2016.
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PFC Tax Free Bonds Oct 2015