HUDCO Tax Free Bonds 2016 – Should you invest?
HUDCO Tax Free Bonds Jan 2016 – Review
After recent IREDA Tax Free Bonds of 2016, now it is the turn for HUDCO Tax Free Bonds 2016. HUDCO Tax Free Bonds of Jan 2016, would open for subscription on 27th January, 2016. These Tax Free Bonds carry 7.64% tax free interest for 15 years bond. It offers 10 and 15 tax free bonds. HUDCO Tax-Free Bonds issue size is Rs 1,711.5 Crores. Should you invest in HUDCO Tax Free Bonds of 2016? What are the positive factors of HUDCO Tax Free Bonds 2016? Are there any hidden or negative factors in these HUDCO Tax free Bonds of Jan-2016?
About HUDCO Ltd
Hudco, a techno-financial institution engaged in the financing and promotion of housing and urban infrastructure projects throughout India. Hudco was established on April 25, 1970 as a wholly owned government company with the objective to provide long term finance and undertake housing and urban infrastructure development programmes. The Company is a public financial institution under section 2(72) of the Companies Act, 2013 and have been conferred the status of Mini-ratna. The Company has a pan-India presence through its wide network of zonal, regional and development offices. The Company believes its organization occupies a key position in the GoI’s growth plans and implementation of its policies for the housing and urban infrastructure sector.
Features of HUDCO Tax Free Bonds 2016
- Issue start date: 27-January-2016
- Issue end date: 10-February-2016
- 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 – 7.27%
- 15 years – 7.64%
- Non-Resident Indians (NRI’s) cannot apply for these tax free bonds.
- Retail investors who are applying above Rs 10 Lakh investment 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. 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 in HUDCO Tax Free Bonds 2016?
- HUDCO is Govt of India enterprise and it is safe to invest in such bonds.
- Attractive tax free returns up to 7.64% per annum for 15 years bond. If you are in a high tax bracket of 30%, your pre-tax return works out to be 11.2%. 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 9.75%. Hence these bonds offer good interest rates for such high tax bracket individuals.
- IRRPL and CARE rated these bonds as AAA.
Why not to invest in HUDCO Tax Free Bonds 2016?
- Last year tax free bonds offered 8%+ tax free interest. Compared to them, interest rates offered for current bonds is very low.
- 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. I have been indicating this for some time and would be posting an article next week.
- There are better 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 HUDCO Tax Free Bonds 2016?
These are issued through demat form or 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 HUDCO Tax Free Bonds of 2016. In case you want to apply in physical form, you can visit Edelweiss Financial Services website and download HUDCO Tax Free Bonds Prospectus and application form.
Conclusion: Like I indicated in my earlier articles on 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, HUDCO Tax Free Bonds which offers 7.64% tax free interest rates for 15 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 HUDCO Tax Free Bonds of 2016.
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HUDCO Tax Free Bonds 2016 Review