IRFC tax free bonds – Jan-2014 (Tranche-I)
India Railway Finance Corporation (IRFC) is issuing tax free bonds for the year 2013-14 (Tranche-I) in the form of non-convertible debentures Tranche-I. IRFC tax free bonds come with 10 and 15 years tenure period. In this article, I would indicate about IRFC tax free bonds of January, 2014, its features and whether one can invest or not?
Indian Railway Finance Corporation (IRFC) is a financing arm of the Indian Railways division. Its exclusive aim is to raise finance for Railways division. IRFC is planning to raise Rs 8,663 Crores as part of its finance requirements and base issue would be Rs 1,500 Crores. The current issue is for Tranche-I of its total requirement.
Features of IRFC Tax Free bonds – January, 2014 (Tranche-I)
- Issue start date: 6-Jan-2014
- Issue end date: 20-Jan-2014
- 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 (Retail investors) and tenure are (< Rs 10 Lakh investment)
- 10 Years – 8.48%
- 15 years – 8.65%
- Non-Resident Indians (NRI’s) can invest on repatriation and non-repatriation basis.
- Retail investors & NRI’s who are applying for bonds for above Rs 10 Lakhs 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 annually
- There is no tax on the interest from these bonds, hence no TDS would be deducted.
- These tax free bonds would be listed on NSE and BSE. Hence these are liquid investments.
- You can apply in demat form or physical form.
Why do you need to invest?
- IRFC which is part of Indian Railways which is Govt of India enterprise and it is safe to invest.
- Attractive tax free returns up to 8.65% per annum. If you are in a high tax bracket of 30%, your pre-tax return works out to be 12.52%. 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 10.89%. Hence these bonds offer good interest rates for such high tax bracket individuals.
- CARE, Crisil and ICRA have rated “AAA” to this tax free bond issue.
Why not to invest?
The rate of interest is low comparing to previous tax free bonds. e. g. IIFCL tax free bond offers 8.73% tax free return for a 15 year bond. This bond offers 8.65%.
IRFC Tax free bond Vs IIFCL Tax free bonds
Currently IIFCL tax free bonds also opened for subscription up to 10th January, 2014 and hence it is important for us to compare both of them before taking investment decisions.
Safety: Both are public enterprises, hence both these tax free bonds are safe.
Credit rating: Both have been rated as AAA.
Interest rates: IIFCL offers 8.73% tax free returns for a 15 year bond comparing to IRFC tax free bond of 8.65%. Similarly for 10 year bond, IIFCL offers 8.66% against IRFC offering 8.48%. Hence for both tenures, IIFCL ranks high.
How to apply IRFC Tax free bonds?
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 ICICI Securities or Axis Bank site etc. or visiting their branches. I feel it is better to apply through demat account for easy liquidity.
Download IRFC Tax free bonds prospectus
Conclusion: Thought IRFC Tax Free bonds of January, 2014 provide good long term returns for high tax bracket individuals, the interest rates are low compared to IIFCL tax free bond which is open now. Personally, I would prefer for IIFCL tax free bonds instead of IRFC tax free bonds now.
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IRFC tax free bonds of January, 2014