7.53% IRFC Tax Free Bonds – Dec 2015 – Should you invest?
IRFC Tax Free Bonds 2015 – Should you invest?
After NTPC, PFC and REC Tax Free Bonds of 2015, now it is the turn for IRFC Tax Free Bonds 2015. IRFC Tax-Free Bonds of Dec 2015, Tranche-I would open for subscription on 8th December, 2015. IRFC Tax-Free Bonds carry 7.53% tax free interest for 15 years bond. It offers 10, 15 and 20 year tax free bonds. IRFC Tax-Free Bonds issue size is Rs 1,000 Crores with an option to retain over subscription upto 3,532 Crores agregating to Rs 4,352 Crores. Should you invest in IRFC Tax-Free Bonds of Dec-2015? What are the positive factors of IRFC Tax Free Bonds of 2015? Are there any hidden or negative factors in these tax free bonds?
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About IRFC Ltd
Indian Railway Finance Corporation Ltd (IRFC) was incorporated on December 12, 1986 under the Companies Act. The GoI, Ministry of Railways, incorporated the Company as a financial arm of Indian Railways, for the purpose of raising a part of the resources necessary for meeting the developmental needs of the Indian Railways. The President of India along with nominees is holding 100% of the Company’s equity share capital. The Ministry of Corporate Affairs, through its notification classified the Company as a Public Financial Institution under Section 4(A) of the Companies Act, 1956. The Company was later classified under the category “Infrastructure Finance Company” by the RBI through a fresh certificate dated November 22, 2010.
Features of IRFC Tax Free Bonds of Dec 2015
- Issue start date: 8-Dec-2015
- Issue end date: 21-Dec-2015
- 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 is as indicated below (For Retail investors of < Rs 10 Lakh investment)
- 10 Years – 7.32%
- 15 years – 7.53%
- 20 years – 7.5%
- Non-Resident Indians (NRI’s) can invest in these IRFC tax free bonds. They can invest on repatriation basis or non-repatriation basis.
- Retail investors who are applying above Rs 10 Lakh investment + NRI investors 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 and NSE. 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?
- IRFC is Govt of India enterprise and it is safe to invest in such bonds.
- Attractive tax free returns up to 7.53% per annum for 15 years bond. If you are in a high tax bracket of 30%, your pre-tax return works out to be 10.9%. 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 9.48%. Hence these bonds offer good interest rates for such high tax bracket individuals.
- ICRA rated these bonds as ICRA AAA (Stable), CRISIL as AAA and CARE as AAA (Triple A).
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Why not to invest?
- 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 IRFC Tax Free Bonds?
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 IRFC Tax Free Bonds of 2015. In case you want to apply in physical form, you can visit Edelweiss Financial Services website and download IRFC Tax Free Bonds Prospectus and application form at this link and follow the process.
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, IRFC Tax Free Bonds which offers 7.53% 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 IRFC Tax Free Bonds of 2015. Going forward, we would observe that interest rates may keep reducing in coming tax free bonds issues in 2016.
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IRFC Tax Free Bonds – Dec 2015 – Should you invest
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The bonds are already oversubscribed. If one applies now, will he get allotment? Does it make a difference if one applies earlier, or say on the last day the issue is open?
It is on first come first serve basis
It’s a good article to get a quick idea on investing in this IRFC bonds
kindly write a blog about the FED hike rate impact to domestic market and recommended strategies in equity, if possible sector specific
Keep up the good work u are doing in the blog anyways
thanks & regards