HUDCO Tax Free Bonds – March 2016 – Tranche-II – Should you invest?
Last month, HUDCO Tax Free Bonds 2016, Tranche-I got oversubscribed. Now it is the turn for HUDCO Tax-Free-Bonds March-2016 Tranche-II, which carries 7.69% tax free interest for a 15 year bond. It offers 10 and 15 tax free bonds. HUDCO Tax-Free Bonds Tranche-II Mar-2016 issue size is Rs 1,788 Crores. With the 2016 budget coming in the next couple of days, we can expect some surprises pertaining to tax free bonds. Should you invest in HUDCO Tax Free Bonds of March 2016 Tranche-II? What are the positive factors of HUDCO Tax Free Bonds March 2016? Should you wait for another tax-free bonds, which are expected to come in the next couple of weeks?
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 programs. 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: 2-March-2016
- Issue end date: 10-March-2016
- The 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); a) 10 Years – 7.29%; b) 15 years – 7.69%
- 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 a buyer in the stock exchange.
- You can apply for these tax free bonds in physical form and demat form.
Below are the Interest rate charts 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 7.69% per annum for a 15 year bond. If you are in a high tax bracket of 30%, your pre-tax return works out to be 11.13%. 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 10.55%. Hence, these bonds offer good interest rates for such high tax bracket individuals.
- IRRPL and CARE rated these bonds as AAA.
- In budget 2016 announcement, finance minstry may take away tax free bonds in coming financial years which would increase current bond prices. One would know this in the next couple of days.
Why not to invest in HUDCO Tax Free Bonds March 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 better investment options like equity mutual funds which can give you 12% to 15% annualised returns if you are able to take risks.
- Not that good investment option for low income tax bracket individuals.
- Budget 2016 can bring some surprises where other tax free bond issue expected in a couple of weeks can carry higher interest rates.
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How to invest in these HUDCO Tax Free Bonds March 2016 – Tranche-II?
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: There is a marginal increase in interest rates compared to earlier bonds. We would be seeing IRFC and NABARD Tax free bonds 2016 issues in coming weeks. I expect that budget of 2016 can bring some surprises and these tax free bonds may not be available in the coming financial years. If that happens, one can expect a rise in these bond prices. Also, if there is increase in fiscal deficit nos in budget announcement, it is likely that future tax free bonds like IRFC and NABARD can carry higher interest rates compared to these bonds. One can park some money in these bonds and can wait for other tax-free-bonds, which are expected before the end of Mar-2016.
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HUDCO Tax Free Bonds – March 2016 – Tranche-II