REC Tax Free bonds-You should invest
Amidst of stock market volatility, investors are finding some good investment options. Apart from SREI NCD which offers secure and safe investment, currently REC tax free bonds hit the market. The interest rates are as high as 8.71% per annum that too it is tax free. There are several reasons why you should invest in such REC Tax Free bonds. In this article, I would indicate about its features and positive factors of REC Tax free bonds. Good part is NRI’s can also invest in REC tax free bonds.
About Rural Electrification Corporation
Rural Electrification Corporation (REC) Ltd is a public sector company. REC provides loans to state power utilities in rural electrification schemes. This is one of the Navrathna Company.
Features of REC Tax Free Bonds
- Issue start date: 30-Aug-13
- Issue end date: 23-Sep-13
- 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 a) 10 Years – 8.26%; b) 15 years – 8.71%; c) 20 years – 8.62%
- Non retail investors would get interest rate of 0.25% lower than the retail investor.
- 40% is reserved for Retail investors and 20% each for HNI, Corporates and QIB’s. HNI includes NRI’s
- REC tax free bonds interest is paid annually.
- There is no tax on the interest from these bonds, hence no TDS deducted.
- Lead Managers: ICICI Securities, AK Capital Services, Axis capital and Edelweiss Financial services
- 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 REC Tax free bonds.
- You can apply in demat form or physical form.
Below is the Interest rates chart along with pre tax returns for individuals on various tax brackets.
*Effective yield is pre-tax returns benefit
Why to invest?
- REC is a public sector company and it is safe to invest.
- Attractive tax free returns up to 8.71%. If you are in high tax bracket of 30%, your pre-tax return works out to be 12.6%. 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 10.97%. Hence these bonds offer good interest rates for such high tax bracket individuals.
- CRISIL, CARE, India Ratings and ICRA have rated AAA for this Tax free bonds issue.
- Last issue (Feb/Mar-13) from REC tax free bonds had interest rates of 7.54%. This is a good opportunity to get 8.71% interest rates.
Why not to invest?
How to apply?
Since these are issued through demat form, you can apply through your demat account. Alternatively if you do not have demat account, you can apply through physical form by downloading application from ICICIdirect.com website. I feel it is better to apply through demat account for easy liquidity.
Please note that these are tax free investments and not tax saving investments. Returns are tax free. However you cannot show these investments under section 80C for tax saving purpose.
Conclusion: REC Tax Free bonds provide good returns for long run for high tax bracket individuals. There is no reason why you should not apply. 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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REC Tax Free bonds
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