NHAI Tax Free Bonds 2016 – Tranche II – Should you invest?
Stock markets are crashing day by day. Investors are now worried where to make fresh investment as equity, is not their cup of tea now in such volatile markets. After recent IREDA and HUDCO Tax-Free-Bonds in 2016, now it is the turn for Tranche-II of NHAI Tax Free Bonds 2016 where there is some boosting to such investors. NHAI Tax Free Bonds Feb 2016, Tranche-II would open for subscription on 24th February, 2016. NHAI Tax-Free Bonds carry 7.69% tax free interest for a 15 years bond. It offers 10 and 15 year tax-free-bonds. NHAI Tax-Free Bonds issue size is Rs 500 Crores with an option to retain another Rs 2,800 Crores aggregating to Rs 3,300 Crores. Should you invest in NHAI Tax-Free Bonds of Feb-2016? What are the positive factors of NHAI Tax Free Bonds 2016? Are there any hidden or negative factors in these bonds?
About NHAI Ltd
NHAI is an autonomous authority of the GoI under the MoRTH constituted on June 15, 1989 by an Act of Parliament titled – The National Highways Authority of India Act, 1988 (NHAI Act). NHAI is responsible for the development, maintenance and management of the National Highway (NH) entrusted to it by the GoI and for matters connected or incidental thereto. Its functions include survey, development, maintenance and management of the NH and, inter alia, to construct offices or workshops, to establish and maintain hotels, restaurants and restrooms at or near the highways entrusted to it, to regulate and control plying of vehicles, to develop and provide consultancy and construction services and to collect fees for services and benefits rendered in accordance with Section 16 of NHAI Act.
Features of NHAI Tax Free Bonds 2016
- Issue start date: 24-Feb-2016
- Issue end date: 1-Mar-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). 10 Years – 7.29%; 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. First interest would be paid on 1st October, 2016 (prorate basis). Thereafter interest is paid for the year on 1st October.
- There is no tax on the interest from these bonds, hence no TDS would be deducted.
- These NCD bonds would be listed on BSE and NSE. Hence, these are liquid investments, provided there is a buyer in the stock exchange.
- You can apply these 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 NHAI Tax Free Bonds 2016?
- NHAI is a Govt of India enterprise and it is safe to invest in such bonds.
- Attractive tax free returns up to 7.69% per annum for 15 years bond. If you are in a high tax bracket of 30%, your pre-tax return works out to be 11.13%. 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 9.69%. Hence, these bonds offer good interest rates for such high tax bracket individuals.
- IRRPL, ICRA, CRISIL and CARE rated these bonds as AAA which indicates highest safety.
Why not to invest in NHAI Tax Free Bonds 2016?
- Last year NCD 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 fetch 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 NHAI 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 NHAI Tax-Free Bonds of 2016. In case you want to apply in physical form, you can visit Edelweiss Financial Services website and download NHAI Tax-Free-Bonds Prospectus and application form. More details can be seen at the NSE website at this link.
Conclusion: Like I indicated in earlier tax-free-bonds analysis, banks are now offering very low interest rates of 8%. If you are in the 30% tax bracket, your post tax returns would be 5.5% only. Similary if you are in the 20% tax bracket, your post tax returns would be 6.5% only. Hence comparing to them, NHAI Tax-Free Bonds which offer 7.69% tax free interest rates for 15 years is a good investment bet. If you are a long term investor and want to get highest tax free returns along with safety, you should invest in NHAI Tax Free Bonds of 2016. My advice is to subscribe it on the first day itself as all such tax-free bonds are getting oversubscribed within few days of opening.
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NHAI Tax Free Bonds 2016 – Tranche II
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