In next 2 days NHPC tax free bonds / Redeemable Non-Convertible Debentures (NCD) are going to hit the markets. The interest rates are similar to PFC Tax free bonds 2013 which are currently open for subscription. While I am providing analysis on NHPC tax free bonds in this article, I would also provide some additional facts about bonds which I have not covered in my previous articles.
About NHPC Tax Free Bonds / NCD
National Hydroelectric Power Corporation Ltd (NHPC) is a government enterprise. It is planning to issue Tax free bonds / NCD’s and the issue would start in the next couple of days. The issue is for Rs 500 Crores with an option to retain additional over subscription for Rs 500 Crores aggregating to Rs 1,000 Crores.
Features of NHPC Tax Free Bonds / NCD’s
- Issue start date: 18-Oct-2013
- Issue end date: 11-Nov-2013
- The face value of the bond is Rs 1,000.
- Minimum investment – 5 Bonds i.e. Rs 5,000 and in multiple of 1 bond thereof
- Interest rates for Retail investors including who invest up to Rs 10 Lakh investment.
- 10 Years – 8.43%
- 15 years – 8.79%
- 20 years – 8.92%
- Non retail investors would get an interest rate of 0.25% lower than the retail investor.
- Interest is paid annually.
- Interest earned on the Bonds shall be exempt from Income tax u/s 10 (15) (iv) (h) of the Income tax Act, hence there is no TDS deducted by company on interest.
- Registrar for this issue is Karvy Computer Share Pvt. Ltd
- These Tax free bonds would be listed on BSE and NSE and these can be traded. Hence these are liquid investments.
- Non-Resident Indians (NRI’s) cannot invest in these tax free bonds.
- You can apply in demat form or physical form.
Below are the Interest rates chart along with pre tax returns for individuals with various tax brackets.
Why to invest?
- NHPC is a public sector company and it is safe to invest.
- Attractive tax free returns up to 8.92%. If you are in a high tax bracket of 30%, your pre-tax return works out to be 12.? %. Currently banks are offering 9% interest rates (pre-tax). Similarly if you are in the 20 % tax bracket, your pre-tax return works out to be 11.? %. Hence these bonds offer good interest rates for everyone whether lower tax bracket or higher tax bracket.
- CARE, ICRA and IIRPL have rated this issue as AAA.
Why not to invest?
- No reasons for not to apply.
How to apply?
Since these are issued through the 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 the application from various sites. I feel it is better to apply through demat account for easy liquidity.
NHPC Tax Free Bonds Vs PFC Tax Free Bonds Vs IIFCL Tax Free Bonds
Safety: All are public enterprises, hence all these tax free bonds are safe.
Credit rating: Both these tax free bond issues have been rated as AAA by the rating agencies.
NRI’s : NRI’s cannot invest in IIFCL and NHPC. However in PFC, NRI’s can invest.
Interest rates: For a 20 year bond, both offer 8.92% tax free interest.
See the comparison chart
Retail investor selling them to non-retail investor, what happens to interest rate, would it be still high or 0.25% lower?
I missed this point earlier. A-Series bonds are for non-retail investors who would get 0.25% low interest rates compared with B-Series bonds which are for retail investors.
B-Series Bonds (Retail investors) sold to Non retail investors: Since B-Series bonds contains 0.25% high interest rates, if they are sold to non retail investors, they would get only lower interest rates though they carry high interest rates. E.g. Suresh, a retail investor who would get 8.92% interest rates for 20 year bond sells them to non-retail investors, they would get only 8.67%.
Vice versa can also happen.
Conclusion: NHPC or PFC Tax free bonds, both are good for investment. Locking your money in such bonds would not only help you to get high tax free returns, but also to protect your investment from increasing inflation.
What are your opinions Tax Free Bonds? Have you invested in any bonds earlier? What is your experience?
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NHPC Tax Free Bonds, Secured NCD-Good to invest
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