IIFCL Tax Free bonds-Oct Tranche-Should you invest?
IIFCL, a government enterprise has come up with tax free bonds. The issue has open up on 3rd Oct, 2013. Thought initially IIFCL Tax free bonds were aiming for Rs 8,171 Crores, the first tranche of October would be for Rs 2,500 Crores only. Can we invest in IIFCL Tax Free Bonds? What are its features and the risks involved in these Tax Free Bonds? Currently HUDCO Tax free bonds issue is also continuing. Among these two tax free bonds which is better option?
Features of IIFCL Tax Free Bonds of October tranche
- Issue start date: 03-Oct-2013
- Issue end date: 31-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 for Retail investors including HUF’s who invest up to Rs 10 Lakh investment.
- 10 Years – 8.26%
- 15 years – 8.63%
- 20 years – 8.75%
- 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.
- 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) cannot invest in these tax free bonds of October, 2013 Tranche-I issue. However NRI’s have chance to invest in HUDCO tax free bonds which is still open.
- 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?
- IIFCL is a public sector company and it is safe to invest.
- Attractive tax free returns up to 8.75%. If you are in high tax bracket of 30%, your pre-tax return works out to be 12.66%. 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 11.02%. Hence these bonds offer good interest rates for such high tax bracket individuals.
- CARE, ICRA and BWR are rated this issue as AAA.
Why not to invest?
- No reasons for not to apply.
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 download the IIFCL Tax Free Bonds application from this link. I feel it is better to apply through demat account for easy liquidity.
IIFCL Tax Free Bonds (Oct Tranche-I) Vs HUDCO Tax free bonds (Sep/Oct Tranche) Vs REC Tax free bonds (Sep Tranche)
Credit rating: Though all of them are government enterprises, REC tax free bonds have been rated as AAA, HUDCO tax free bonds are rated as “AA+”. IIFCL Oct Tranche Tax Free Bonds are rated as AAA by all rating agencies.
Interest rates: Tax Free Bonds of IIFCL offer 8.63%, HUDCO tax free bonds offers 8.76% interest where as REC tax free bonds interest rates were 8.71% for 15 years period.
IIFCL and HUDCO Tax Free Bonds, which one to buy?
If you are thinking which one to choose here is a quick tip for you. If you want to invest for 10 years or 15 years, you should opt for HUDCO Tax Free Bond. If you opt for 20 year tax free bond, invest in IIFCL tax free bond as you would get high interest rates for that period. See this chart.
Conclusion: IIFCL Tax Free bonds provide good returns for long run for high tax bracket individuals. Based on the tenure, you can opt either for IIFCL or HUDCO Tax free bonds.
What is your opinion on Tax Free Bonds? Have you invested in any bonds earlier? What is your experience?
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Tax Free Bonds – IIFCL