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IRFC 7.64% Tax Free Bonds – Tranche II (March 2016) – Details & Review

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Indian Railways Finance Corporation  (IRFC)  is offering tax-free bonds to raise Rs 2450 crore at the rate of 7.29% (10 years) and 7.64% (15 years) to retail investors.

The rural focused development lender has already raised Rs 1500 crore via private placement.

The issue will open on March 10 on First-come-first serve basis.  Closing date March 14, 2016.

Size of the Issue – IRFC is authorized to raise Rs. 2450 crore from tax free bonds this financial year.  

Other open TAX FREE Bond – NABARD 7.64% Tax free bond (9-14 March 2016)

IRFC issue will be open from 10-March-2016 to 14-Mar-2016.

IRFC Tax Free Bonds  (Retail Investors upto Rs 10 Lakhs)
Details Series I Series II
Tenor 10 Years 15 years
Interest Paid Annual Annual
Coupon Rate 7.29% 7.64%
Effective Pre-Tax Yield (30% tax slab) 10.41%  10.91%
Effective Pre-Tax Yield  (20% tax slab)  9.11% 9.55%
Effective Pre-Tax Yield (10% tax slab)  8.1% 8.49%
Minimum Application Rs 5000
Maximum Application Rs 10 lacs ( Retail)

For those in the highest tax bracket, tax-free bonds work well.

About the Company

IRFC is dedicated financing arm of the Ministry of Railways.  Its sole objective is to raise money from the market to part finance the plan outlay of Indian Railways.  The money so made available is used for acquisition of rolling stock assets and for meeting other developmental needs of the Indian Railways.

Given that IRFC is a government owned company, credit risk is low. Rating agencies Crisil, Care, IRPL and Icra have assigned AAA ratings to the issue.

Other Important Points

  • The IRFC issue has two series of 10- and 15-year tenures which offer 7.29% and 7.64% a year, respectively, for retail investors.
  • Retail investors can invest up to Rs.10 lakh across series. At least 40% of the issue is reserved for retail investors
  • Interest is payable annually on Oct 15 every year. The interest earned every year is tax-free. So, if you invest Rs.1 lakh in the 15-year bond, you will receive Rs.7,600 per year, and this entire amount is your earning.
  • Allotment will be on first come first serve basis; experts are optimistic about allotment given the large size of the issue.
  • Long-term borrowings of the company are rated AAA equivalent by rating agencies Crisil Ltd (AAA/Stable), ICRA Ltd, CARE Ltd and India Ratings and Research Pvt. Ltd.
  • Bonds will be listed on NSE & BSE
  • Investors can choose to apply in demat as well as physical form. Demat account is not mandatory. However, if you want to sell/trade these bonds before maturity, it is mandatory to have a demat account. You can subscribe to them in physical form as well and keep them till maturity.

NRI/FPI/QFI Investment Allowed – This issue will try to quench the thirst of some Non-Resident Indians (NRIs), Foreign Portfolio Investors (FPIs) and Qualified Foreign Investors (QFIs) as they have been allowed to invest in this issue either on a repatriation basis or a non-repatriation basis.

 

Category I – Qualified Institutional Bidders (QIBs) – 10% of the issue is reserved i.e. Rs. 245 crore

Category II – Non-Institutional Investors (NIIs) – 15% of the issue is reserved i.e. Rs. 367.50 crore

Category III – High Net Worth Individuals including HUFs – 15% of the issue is reserved i.e. Rs. 367.50 crore

Category IV – Resident Indian Individuals including HUFs – 60% of the issue is reserved i.e. Rs. 1,470 crore

 

 

Comparison to other Tax free bonds in 2015-2016

NABARD 10, 15 years 7.29% for 10 years, 7.64% for 15 years AAA Mar 9 to
Power Finance Corporation (PFC) 10, 15 and 20 years  7.36% for 10 years, 7.52% for 15 years and 7.60% for 20 years. CARE AAA Oct 5 – Oct 9
NTPC Ltd 10, 15 and 20 years  7.36% for 10 years tenure, 7.53% for 15 years and 7.62% for 20 years. CARE AAA  Sep 23-Sep 25
REC 10, 15 and 20 years 7.14% for 10 years tenure, 7.34% for 15 years and 7.43% for 20 years. AAA 27 Oct –
NHAI 10 & 15 years 7.39% for 10 years tenure, 7.60% for 15 years AAA 17 -31 Dec
IREDA 10, 15 and 20 years 7.53% for 10 years, 7.74% for 15 years and 7.68% for 20 years ICRA AA+ 8 Jan – 22 Jan 2016
HUDCO Tranche I 10,15 years 7.64% for 15 years and 7.27% for 10 years. AAA Jan 27 – Feb 10, 2016
 NHAI 10,15 years 7.69% coupon rate for 15 years and 7.29% for 10 year AAA  Feb 24- 1 Mar
HUDCO Tranche II 10,15 years 7.29% for 10 years& 7.69% for 15 years AAA 2-10 March
NABARD 10, 15 years 7.29% for 10 years, 7.64% for 15 years AAA 9 Mar- 14 March

Download the Form

You can invest in IRFC Tax free bonds through your online brokerage accounts like ICICIDIrect, HDFC Sec, Reliance Sec, Sharekhan, etc

You can download the Form from IRFC Website.

Taxation Aspects of Tax FREE Bonds

Read my Post –  Taxation Aspects of Tax free Bonds?

Merits & Demerits of Tax free Bonds

Read –  Tax free Bonds – Should you invest in these?

If the bonds are sold on the exchange at a premium, you will have to pay capital gains tax. Long-term capital gains is applicable on listed bonds if they are sold after one year and is calculated at 10% without indexation. And if you sell or transfer your bonds, the buyer (other than a retail investor) gets a coupon reduced by 25 bps where enhanced coupon for retail investors is applicable.

Allotment Status of IRFC Tax free Bonds

Youc an check the Allotment status of your IRFC Tax free Bonds application at link below by entering application number / PAN number:

http://mis.karvycomputershare.com/ipo/

Summary

For those in the highest tax bracket (30% or 20%) , can consider investing in tax-free bonds. They can allocate some portion of their debt investment allocation to tax free bonds. It is better to invest in DMAT mode as it allows liquidity and sell before maturity if needed.

If you have any queries related to this article or any other personal finance query ( Investment, Taxation etc), please comment below

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About wealth18

The author is a Chartered Accountant and loves to write about Personal Finance, Wealth Management, Taxation etc. Disclaimer - The articles on this website is for informational and knowledge purposes and should not be treated as financial advice, Please consult your financial advisor before taking any investment decision.

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