NABARD is offering tax-free bonds to raise Rs 3500 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 9 on First-come-first serve basis.
Size of the Issue – NABARD is authorized to raise Rs. 5,000 crore from tax free bonds this financial year. The company has already raised Rs. 1500 crore through private placement. The company will raise Rs. 3500 crore in this issue.
The issue will be open during 09-March-2016.
Other open TAX FREE Bond – IRFC 7.64% Tax free bond (10-14 March 2016)
| NABARD Tax Free Bonds | ||
| 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
National Bank for Agriculture and Rural Development (NABARD) is an apex development bank in India, having headquarters in Mumbai (Maharashtra) and other branches are all over the country.
Given that NABARD 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 NHAI 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 1 April 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 Investment: Non US NRI can invest in this issue.
Comparison to other Tax free bonds in 2015-2016
| 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 | 7.69% for 15 years and 7.29% for 10 years. | AAA | 2-10 March |
Download the Form
You can invest in NABARD Tax free bonds through your online brokerage accounts like ICICIDIrect, HDFC Sec, Reliance Sec, Sharekhan, etc
You can download the Form from NABARD 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 NABARD Tax free Bonds
Youc an check the Allotment status of your NABARD Tax free Bonds application at link below by entering application number / PAN number:
https://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.