9.01% – NHB tax free bonds – Jan-2014 (Tranche-I)

NHB tax free bonds 2013-2014-Tranche-I9.01% – NHB tax free bonds – Jan-2014 (Tranche-I)

National Housing Bank, a subsidiary of the RBI is coming up with Tax Free bonds of Tranche-I to issue Rs 2,100 Crores. The interest rates are as high as 9.01% which are totally tax free. There are several reasons why you should subscribe for this NHB tax free bond of December/January-2014. I would also provide a comparison between NHB tax free bonds, IIFCL Tax Free bonds and IRFC tax free bonds which would be open next week for subscription.

About NHB

National Housing Bank (NHB) is a wholly owned subsidiary of Reserve Bank of India.  NHB was established on July 9, 1988 under an Act of Parliament viz., the NHB Act to function as a principal agency to promote housing finance institutions at local and regional levels and to provide financial and other support to such institutions

Also Read: 8.91% IIFCL tax Free Bonds 2013-2014

Features of NHB Tax Free bonds – January, 2014 (Tranche-I)

  • Issue start date: 30-Dec-2013
  • Issue end date: 31-Jan-2014
  • Face value of the bond is Rs 5,000.
  • Minimum investment – 1 Bond 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 – 8.51%
  • 15 years – 8.88%
  • 20 years – 9.01%
  • Non Resident-Indians are not eligible to apply for these bonds.
  • Retail Investors 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 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.
  • You can apply in demat form or physical form.
Tenure (Years) Face Value (Rs) Interest Rate % for retail investors Effective Yield -30.9% tax bracket individuals Effective Yield -20.6% tax bracket individuals Effective Yield -10.3% tax bracket individuals
10 5,000 8.51% 12.32% 10.72% 9.49%
15 5,000 8.88% 12.85% 11.18% 9.90%
20 5,000 9.01% 13.04% 11.35% 10.04%

Why to invest?

  • NHB is part of RBI and it is safe to invest.
  • Attractive tax free returns up to 9.01% per annum. If you are in a high tax bracket of 30%, your pre-tax return works out to be 13.04%. 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 11.35%. Hence these bonds offer good interest rates for such high tax bracket individuals.
  • CARE, Crisil and ICRA have rated “AAA” to this tax free bond issue.

Why not to invest?


NHB Tax Free bonds Vs IRFC Tax free bond Vs IIFCL Tax free bonds

Currently IIFCL tax free bonds also opened for subscription up to 10th January, 2014 and IRFC tax free bonds would open on 6th January, 2014, hence it is important for us to compare them before taking investment decisions.

Safety: All three are Government enterprises, hence these tax free bonds are safe.

Credit rating: All these are rated as AAA.

Interest rates: IIFCL offers 8.73% tax free returns for a 15 year bond comparing to IRFC tax free bond of 8.65%. However NHB tax free bond offers 8.88% tax free returns for this tenure.

Hence comparing among these three bonds, NHB tax free bonds scores high.

Also read: IRFC tax free bonds 2014

How to apply NHB 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.

Download NHB Tax Free bonds Tranche-I 2013-14 prospectus

Conclusion: NHB tax free bonds offer 9.01% tax free returns. In case you are in high tax bracket and looking for safe investment options, this is the best option to invest your money.

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NHB tax free bonds of January, 2014

Suresh KP


  1. Hi Suresh,

    I do not have demat account.

    Could you please advise if I can invest now through filling form, and later when get demat account, can these be transferred in demat , without incurring any cost?


    1. Hi Snehal, Yes you can apply by filling physical form. I am not sure whether you can trasfer them into demat at later point of time. These are issued in demat form when they are applied now.

  2. Hi Suresh,

    Is it ok to take 20yr bond in physical form or can there be any problem in long term apart from the liquidity issue?I am ok with no-liquidity as I dont intend to sell them so anything else which can be problem in long run?



    1. Saurabh, There are few things you need to consider 1) What happens if you change your address ? You need to intimate for all such manual corrections for each and every bond 2) What happens if you change your bank account ? All these can be taken care if you have demat account. It would be immaterial, how many bonds you buy, you just need to update once with demat account level. These are some high level issues which you may face if you consider physical form. But I am interested to know why you would like to choose physical form and what benefits you see in this ?

      1. Thanksfor reply.

        Actually the question was asked on behalf of someone as he doesnt have a demat account.I have already told him to open a demat account.

        Yesterday I put application via my broker but at end of the day he told me that issue was oversubscribed on 1st day itself and I will get only 75% of the applied bond units.Is this correct?

        I am surprised to see such huge response that it got oversubscribed on day 1 itself even though it was not a small issue almost 2100crores.

        1. Saurabh, There is good demand for such investment options. It subscribed for 2.8 times on first day and it got closed. Means if you apply for Rs 100,000, you may get allotment for Rs 35,000 (approx) only. Balance would be refunded to you.

  3. Hi Suresh,

    I have emailed you my queries. Can you please check and respond. Appreciate your time and the work you are doing here.



    1. Avi, For tax free bonds, the interest is tax free, you need not pay any tax on this. Tax saver FD’s provide tax benefit to your existing income u/s 80C up to Rs 1 Lakh.

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