8.92% NHPC Tax Free Bonds/Secured NCD of 2013-Good to invest

NHPC Tax Free Bonds, Secured NCD-October,November-20138.92% NHPC Tax Free Bonds, Secured NCD-Good to invest

In next 2 days NHPC tax free bonds / Redeemable Non-Convertible Debentures (NCD) are going to hit the markets. The interest rates are similar to PFC Tax free bonds 2013 which are currently open for subscription. While I am providing analysis on NHPC tax free bonds in this article, I would also provide some additional facts about bonds which I have not covered in my previous articles.

About NHPC Tax Free Bonds / NCD

National Hydroelectric Power Corporation Ltd (NHPC) is a government enterprise. It is planning to issue Tax free bonds / NCD’s and the issue would start in the next couple of days. The issue is for Rs 500 Crores with an option to retain additional over subscription for Rs 500 Crores aggregating to Rs 1,000 Crores.

Also read: Complete Guide on New Pension Scheme

Features of NHPC Tax Free Bonds / NCD’s

  • Issue start date: 18-Oct-2013
  • Issue end date: 11-Nov-2013
  • 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 for Retail investors including who invest up to Rs 10 Lakh investment.
  • 10 Years – 8.43%
  • 15 years – 8.79%
  • 20 years – 8.92%
  • Non retail investors would get an interest rate of 0.25% lower than the retail investor.
  • Interest is paid annually.
  • Interest earned on the Bonds shall be exempt from Income tax u/s 10 (15) (iv) (h) of the Income tax Act, hence there is no TDS deducted by company on interest.
  • Registrar for this issue is Karvy Computer Share Pvt. Ltd
  • These Tax free bonds would be listed on BSE and NSE and these can be traded. Hence these are liquid investments.
  • Non-Resident Indians (NRI’s) cannot invest in these tax free bonds.
  • You can apply in demat form or physical form.

Below are the Interest rates chart along with pre tax returns for individuals with various tax brackets.

NHPC Tax Free Bonds, Secured NCD-Interest chart

Why to invest?

  • NHPC is a public sector company and it is safe to invest.
  • Attractive tax free returns up to 8.92%. If you are in a high tax bracket of 30%, your pre-tax return works out to be 12.? %. Currently banks are offering 9% interest rates (pre-tax). Similarly if you are in the 20 % tax bracket, your pre-tax return works out to be 11.? %. Hence these bonds offer good interest rates for everyone whether lower tax bracket or higher tax bracket.
  • CARE, ICRA and IIRPL have rated this issue as AAA.

Why not to invest?

  • No reasons for not to apply.

How to apply?

Since these are issued through the demat form, you can apply through your broker where you are maintaining demat account. Alternatively if you do not have demat account, you can apply through physical form by downloading the application from various sites. I feel it is better to apply through demat account for easy liquidity.

NHPC Tax Free Bonds Vs PFC Tax Free Bonds Vs IIFCL Tax Free Bonds

Safety: All are public enterprises, hence all these tax free bonds are safe.

Credit rating: Both these tax free bond issues have been rated as AAA by the rating agencies.

NRI’s : NRI’s cannot invest in IIFCL and NHPC. However in PFC, NRI’s can invest.

Interest rates: For a 20 year bond, both offer 8.92% tax free interest.

See the comparison chart

NHPC Tax Free Bonds, Secured NCD-Comparison

Also read: Can you copy paste a investment idea from others?

Retail investor selling them to non-retail investor, what happens to interest rate, would it be still high or 0.25% lower?

I missed this point earlier. A-Series bonds are for non-retail investors who would get 0.25% low interest rates compared with B-Series bonds which are for retail investors.

B-Series Bonds (Retail investors) sold to Non retail investors: Since B-Series bonds contains 0.25% high interest rates, if they are sold to non retail investors, they would get only lower interest rates though they carry high interest rates. E.g. Suresh, a retail investor who would get 8.92% interest rates for 20 year bond sells them to non-retail investors, they would get only 8.67%.

Vice versa can also happen.

Conclusion: NHPC or PFC Tax free bonds, both are good for investment. Locking your money in such bonds would not only help you to get high tax free returns, but also to protect your investment from increasing inflation.

What are your opinions Tax Free Bonds? Have you invested in any bonds earlier? What is your experience?

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Suresh
NHPC Tax Free Bonds, Secured NCD-Good to invest

Suresh KP

30 comments

  • Arpit

    Hi Suresh,

    Can you please suggest me where should I invest my money in : PPF vs Tax Free Bonds

    I am new to this and have just started my job.

    • Arpit, PPF rate is around 8.5%, these tax free bonds comes with 8.92%. PPF, you cannot close your investment, but tax free bonds can be sold in open market, may be with some discount. Now you know the answer why people are preferring tax free bonds.

      • Arpit

        But the bank FDs are giving a higher rate of interest as compared to PPF and Tax Free Bonds and also less tenure…

        Den y to go for all dese investments..I fall in the 10% tax bracket and i am really confused what to do..

        Pls help..Thanks

        • Arpit, Here is the comparison 1) Bank FD: You would get 9% returns. Since you are in 10% tax bracket, you would get 8.1% returns. Easy liquidty 2) PPF- Lock-in period of 15 years. You would get tax free returns after 15 years which would be 8.5% per annum. Cannot liquidate before 15 years 3) Tax free returns of 8.92% returns. You would get tax free returns ever year. These are tradeable on stock exchanges, hence liquidity is not issue. The only drawback is if you want to sell them on stock exchange, you would get Rs 1,000 per bond, it may be sold at lesser value. Now you know why I recommend to invest in these bonds. 

  • libu

    According to page 37 of http://www.nhpcindia.com/writereaddata/Images/pdf/NHPC_Draft_Prospectus_2013.pdf NRIs cannot apply. Did they amend the final prospectus ?

     

  • yuvi jain

    Suresh,

    Your comparison chart shows PFC twice. Please correct. Thanks for the quick update on the tax-free bonds.

     

    Thx,

    yuvi

    • Thanks Yuvi Jain, I have updated the header now. You helped me, I wish god to help you by growing your investments at faster pace comparing to others 🙂 Just kidding, but I owe you. Please let me know in case you have any specific queries about investments, I am glad to help you. 

  • sandeep

    Sir, I am new to investing. I have insurance covered up. I need to start investing now. Are these bonds a good starting point? I have only 1 lac surplus amount to invest now. Is it good to go for these bonds with that amount and take SIP's for mutual funds as i can pay them monthly ?

    • Sandeep, If you are paying income tax and fall in 20% or 30% tax bracket, you can invest in tax free bonds. But if you think you can take risk, but expect more returns, you can invest in mutual funds through SIP. Other question is you said you want to invest in Tax free bonds and with interest you want to take SIP. This is good, but interest would be paid only yearly. SIP’s are monthly, not sure how you may plan this.

  • Kirsty

    Thanks.  So if I am in the highest tax bracket and invest 1 lakh.  How much money will I get if I invest for:-

    10 yrs/ 15 yrs/ 20 yrs?

     

    Thanks

    • Kirsty, The interest is payable every year. If you invest Rs 1 Lakh for 20 years bond, at 8.92% interest rates you would get Rs 8,920 per annum. At maturity you would get your Rs 1 Lakh back. 

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