IREDA Tax Free Bonds 2016 – Should you invest?
IREDA Tax Free Bonds 2016 Review
After recent NHAI Tax Free Bonds of 2015, now it is the turn for IREDA Tax Free Bonds 2016. IREDA Tax Free Bonds Jan 2016, would open for subscription on 8th January, 2016. These Tax Free Bonds carry 7.68% tax free interest for 20 years bond. It offers 10, 15 and 20 year tax free bonds. IREDA Tax-Free Bonds issue size is Rs 1,716 Crores. Should you invest in IREDA Tax Free Bonds of Jan-2016? What are the positive factors of IREDA Tax Free Bonds 2016? Are there any hidden or negative factors in these tax free bonds?
About IREDA Ltd
The Company was registered as a systematically important non deposit taking NBFC. The Company was set up by GoI under the administrative control of MNRE to promote, develop and extend financial assistance for renewable energy and energy efficiency projects. Further, the Company has been notified as a ‘Public Financial Institution’ by the MCA, through a notification (No. 10/37/94-CL.V) dated October 18, 1995. The President of India holds 100% of the paid up Equity Share capital of the Company, either directly or through nominee shareholders.
Features of IREDA Tax Free Bonds 2016
- Issue start date: 8-January-2016
- Issue end date: 22-January-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 – 7.53%; 15 years – 7.74%; 20 years – 7.68%
- Non-Resident Indians (NRI’s) cannot apply for these tax free bonds.
- Retail investors who are applying above Rs 10 Lakh investment 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 in IREDA Tax Free Bonds 2016?
- IREDA is Govt of India enterprise and it is safe to invest in such bonds.
- Attractive tax free returns up to 7.74% 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 ICRA rated these bonds as AA+ which indicates Stable outlook.
Why not to invest in IREDA 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.
- 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 IREDA 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 IREDA Tax Free Bonds of 2016. In case you want to apply in physical form, you can visit Edelweiss Financial Services website and download IREDA Tax Free Bonds Prospectus and application form.
Conclusion: Like I indicated in earlier 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, IREDA Tax Free Bonds which offers 7.74% 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 IREDA Tax Free Bonds of 2016.
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IREDA Tax Free Bonds 2016