Best Investment for every one-PFC Tax Free bonds-Oct/Nov-2013
PFC Tax free bonds of Oct, Nov-2013 Tranche-I issue is going to open up in next 3 days. It would beat all earlier tax free bonds issue, as the tax free interest income is as high as 8.92%. Who would invest in fixed deposit for 9%, if you are going to get tax free income up to 8.92% ? While REC, HUDCO and IIFCL tax free bonds were good for high tax bracket individuals, these PFC Tax free bonds are good even for low tax bracket tax individuals. You should invest in these secured PFC tax free bonds.
About PFC Tax free bonds
Power Finance Corporation (PFC) is a government enterprise. PFC planned to raise Rs 5,000 Crore in this financial year thru tax free bonds. While it could able to get Rs 1,124 Crores through private placement, current issue of tax free bonds is for Rs 750 Crores and it would retain over subscription up to Rs 3,876 Crores.
Features of PFC Tax Free Bonds of October/November Tranche-I
- Issue start date: 14-Oct-2013
- Issue end date: 11-Nov-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 for Retail investors
- 10 Years – 8.43%
- 15 years – 8.79%
- 20 years – 8.92%
- Non retail investors would get interest rate of 0.25% lower than the retail investor.
- Interest is paid annually.
- There is no tax on the interest from these bonds; hence no TDS would be deducted.
- Lead Managers for this issue is ICICI Securities.
- These Tax free bonds would be listed on BSE only. There is no lock-in period. Hence these are liquid investments where you can sell in open market. The price of the bond would depend on market price.
- Non-Resident Indians (NRI’s) can invest in repatriation and non-repatriation basis.
- 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.
Why to invest?
- PFC is a public sector company and it is safe to invest. Your investment is secured in nature.
- Attractive tax free returns up to 8.92%. If you are in high tax bracket of 30%, your pre-tax return works out to be 12.91%. 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 11.23%. Finally, if you are in 10% tax bracket, your pre-tax return works out to be 9.94%. Hence these bonds offer good interest rates for everyone.
- CRISIL, CARE and ICRA have rated this issue as AAA.
Why not to invest?
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 various sites. You can view prospectus of PFC Tax Free Bonds link from this link. Dont use this document for application purpose as there is application number indicated. I feel it is better to apply through demat account for easy liquidity. Please note that as per Sebi guidelines, bidding is mandatory before you apply. You can apply thru agents like ICICIDirect.com etc. so that the process would be taken care by them.
PFC Tax Free Bonds (Oct/Nov-13 Tranche-I) Vs IIFCL Tax free bonds (Oct-13 Tranche)
- Credit rating: Both are government enterprises and rated AAA by all credit rating agencies.
- Interest rates: Tax Free Bonds of PFC offer 8.92% interest where as IIFCL tax free bonds interest rates were 8.75% for 20 years period.
PFC and IIFCL Tax Free Bonds, confused which one to buy? Here is the quick tip
Just check this comparison chart of recent tax free bonds which includes comparison between PFC Tax free bond and IIFCL tax free bond. I need not tell you where to invest. It clearly highlights that irrespective of 10, 15 or 20 years, you should invest in PFC tax free bonds of current issue.
Well, new tax free bonds issues are coming with high interest rates, do I need to wait for few more weeks to benefit more?
It is very difficult to say whether future tax free bonds would come up with much higher interest rates comparing with PFC bonds. If you are planning to invest in tax free bonds and still in dilemma, you can invest part of your investment in these bonds.
Conclusion: PFC Tax Free bonds provide good returns for long run for all individuals irrespective whether an individual is in low tax bracket or high tax bracket. While banks are providing interest rates of 9% which is taxable, tax free bonds like PFC are good investment where you can get secured tax free income for long run. I feel this is one of the best investment options.
What is your opinion Tax Free Bonds? Have you invested in any bonds earlier? What is your experience?
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Power Finance Corporation (PFC) Tax Free Bonds