8.88% IRFC tax free bonds Tranche-II- Feb/Mar-2014

IRFC tax free bonds-Tranche-ii-2013-148.88% IRFC tax free bonds Tranche-II- Feb/Mar-2014

IRFC has come up with Tranche-II of tax free bonds, which opens for subscription today (28-February-2014). India Railway Finance Corporation (IRFC) tax free bonds offer 8.88% tax free returns for the year 2013-14 (Tranche-II) in the form of non-convertible debentures. IRFC tax free bonds come with 10 and 15 year tenure period.  In this article, I would indicate about IRFC tax free bonds of February/March, 2014, its features and whether one can invest or not?

About IRFC

Indian Railway Finance Corporation (IRFC) is a finance arm of the Indian Railways division. Its exclusive aim is to raise finance for Railways division. IRFC is planning to raise Rs 8,663 Crores as part of its finance requirements and base issue would be Rs 1,500 Crores. The current issue is for Tranche-II of its total requirement.

Also Read: IREDA Tax Free bonds of 2013-14 offers 8.8% returns-Should you buy?

Features of IRFC Tax Free bonds – February/March, 2014 (Tranche-II)

  • Issue start date: 28-Feb-2014
  • Issue end date: 7-March-2014
  • 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 (Retail investors) and tenure are (< Rs 10 Lakh investment)
  • 10 Years – 8.44%
  • 15 years – 8.88%
  • Retail investors & NRI’s who are applying for bonds for above Rs 10 Lakhs 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 annually
  • There is no TDS on the interest from these bonds.
  • These tax free bonds would be listed on NSE and BSE. Hence, these are liquid investments.
  • You can apply in demat form or physical form.

Interest rates on these tax free bonds for various tax bracket individuals are indicated below

IRFC tax free bonds-Tranche-ii-feb-mar-2014-interest rates; IRFC bonds offers tax free income

Why do you need to invest?

  • IRFC is part of Indian Railways (Govt of India enterprise) and it is safe to invest.
  • Attractive tax free returns up to 8.88% per annum. If you are in a high tax bracket of 30%, your pre-tax return works out to be 12.85%. 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 11.18%. Hence, these bonds offer good interest rates for such high tax bracket individuals.
  • CARE, Crisil and ICRA have been rated AAA for this tax free bond issue.

Why not to invest?

  • There are a few tax free bonds, which are available in open stock market, which provides 9% returns on your investment.

Also Read: Good tax free bonds available in stock market now

IRFC Tax free bond Vs IREDA Tax free bonds

Currently IREDA tax free bonds also opened for subscription up to 10th March, 2014 and hence it is important for us to compare both of them before taking investment decisions.

  • Safety: Both are public enterprises, hence both these tax free bonds are safe.
  • Credit rating: Both have been rated as AAA.
  • Interest rates: IREDA offers 8.65% tax free returns for a 15 year bond comparing to IRFC tax free bond of 8.88%. Similarly for 10 year bond, IREDA offers 8.41% against IRFC offering 8.44%. Hence IRFC bonds score high.

How to apply IRFC Tax free bonds?

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 ICICI Securities or Axis Bank site etc. or visiting their branches. I feel it is better to apply through demat account for easy liquidity.

Conclusion: Comparing to IREDA tax free bonds, IRFC tax free bonds provide higher returns. I personally prefer to invest in IRFC bonds given an option between the two.

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8.88% IRFC tax free bonds Tranche-II- Feb/Mar-2014

Suresh KP

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