REC Tax Free Bonds – Oct 2015 – Should you invest?
In last 2 months, NTPC and PFC Tax Free Bonds of 2015 are issued and got oversubscribed. Now it is the turn for REC Tax Free Bonds 2015. REC Tax Free Bonds of 2015 would open for subscription on 27th October, 2015. REC Ltd Tax Free Bonds carry 7.43% tax free interest for 20 years bond. It offers 10, 15 and 20 year tax free bonds. REC bonds issue size also is Rs 700 Crores. Should you invest in REC Tax Free Bonds of Oct-2015? What are the positive factors of REC Tax Free Bonds of October 2015? Are there any hidden or negative factors in these tax free bonds?
About REC Ltd
Rural Electrification Corporation (REC) Ltd is a Govt. of India enterprise. REC provides loans to state power utilities in rural electrification schemes. REC is planning to mobilize Rs 700 Crores through this tax free bonds issue in 2015.
Features of REC Tax Free Bonds 2015
- Issue start date: 27-Oct-2015
- Issue end date: 4-Nov-2015
- 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 and tenure (For Retail investors of < Rs 10 Lakh investment)
- 10 Years – 7.14%
- 15 years – 7.34%
- 20 years – 7.43%
- Non-Resident Indians (NRI’s) can invest in these tax free bonds of REC of October, 2015. They can invest on repatriation basis only.
- Retail who are applying above Rs 10 Lakh investment + NRI investors who are applying for bonds 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 every year.
- There is no tax on the interest from these bonds, hence no TDS would be deducted.
- These tax free bonds would be listed on BSE only. Hence these are liquid investments, provided there is buyer in stock exchange.
- You can apply for these tax free bonds in physical form and demat form.
Below are the Interest rates chart along with pre tax returns for individuals with various tax brackets
Why should you invest?
- REC is Govt of India enterprise and it is safe to invest in such bonds.
- Attractive tax free returns up to 7.43% per annum for 20 year bond. If you are in a high tax bracket of 30%, your pre-tax return works out to be 10.75%. Currently banks are offering 8% interest rates (pre-tax). Similarly if you are in the 20 % tax bracket, your pre-tax return works out to be 10.62%. Hence these bonds offer good interest rates for such high tax bracket individuals.
- ICRA rated these bonds as ICRA AAA (Stable), CRISIL as AAA, CARE as AAA (Triple A) and Indrating as INDAAA/Stable.
Why not to invest?
- Last year tax free bonds offered 8%+ tax free interest. Compared to them, interest rates offered for current bonds is very low. Even PFC Tax Free Bonds which got closed in this month offered 7.6% for 20 year bond. Current REC bonds are offering 7.43%, means reduction of 0.17%.
- There are a few tax free bonds which are available in the secondary market at discounted price where you can look them for alternative investment option.
- There are best investment options like equity mutual funds which can give you 12% to 15% annualised returns if you are able to take risk.
- Not that good investment option for low income tax bracket individuals.
How to invest in these REC Tax Free Bonds 2015?
You can apply in demat as well as physical form. In case of demat form, you need to apply through your broker where you are maintaining demat account. Just login to your demat account and under BONDS section you should be able to see a link on the start date of opening of subscription of these REC Tax Free Bonds of 2015. In case you want to apply in physical form, you can visit Edelweiss Financial Services website and download REC Tax Free Bonds Prospectus and application form at this link and follow the process. https://www.edelweisspartners.com/
Conclusion: Like I indicated in NTPC & PFC tax free bonds analysis, banks are now offering very low interest rates of 8%. If you are in 30% tax bracket, your post tax returns would be 5.6% only. Similary if you are in 20% tax bracket, your post tax returns would be 6.4% only. Hence comparing to them, REC Tax Free Bonds which offers 7.43% interest rates for 20 years is good investment bet. If you are long term investor and want to get highest tax free returns along with safety, you should invest in REC Tax Free Bonds of Oct-2015. If you observe, NTPC tax free bonds offered 7.62%, PFC Tax free bonds too offered 7.6%, however now REC Tax Free Bonds is offering reduced interest rate of 7.43%. Going forward, we would observe that interest rates may keep reducing in coming tax free bonds issues in 2015-2016.
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REC Tax Free Bonds – Oct 2015 – Should you invest?
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