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.
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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.
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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.
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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
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Do tax free bonds available in the secondary market offer better returns than HUDCO tax free bond 2016? Kindly post your article on them quickly so that investors may be able to choose between the two.
This article is quite useful. Please continue to guide us in future in this manner. Thanks
I fail to understand why there is no Cumulative option in such bonds. I am yet to see a tax free bond with a Cum. option. If these bonds are meant for retail investors, then surely there will be people in the 30% IT bracket who may not necessarily need money periodically, but may want it only on maturity. These bionds have totally ignored this category of investors.
Or is it that they are meant only for retirees who need periodic income. Even in this case, it is not that all the retirees need periodic income.
What do u think is the reasoning behind such a structure of these bonds?
Dinesh, earlier we used to get these bonds with cumulative option. This option is good for high tax bracket individuals or for Senior Citizens who want to invest in safe investments.
Thanks Suresh for all awesome articles on personal finance.All of your posts are simple and straight to the point.
These days these type of bonds became a big hit mainly for people who could invest crores..
They get interest free income for up to 15 years which is really good.
May be for small investors,these may not look that good and can invest if one is looking for a stable income..
NRI ~s cannot apply for the tax free bonds + NRI investors applying for these bonds would get .25 % less interest rate.
Pl explain these conflicting statements.
There was an error Ashok. I corrected. Thanks for pointing it out. NRI’s are not eligible to invest in these bonds