Friday, January 18, 2013

Zero Coupon Bond - from REC (Rural Electrification Corporation)

REC had issued Unsecured Zero Coupon Bonds in 2010.

With a maturity period of 10 years, these bonds now have remaining 8 years to mature in Dec 2020.

These bonds are now being offered as per details below:

Investment Value :  Rs.8,06,000 (i.e. 50 bonds at Rs.16,120 per bond)
Face Value on maturity : Rs.15,00,000 (i.e. 50 bonds at Rs.30,000 per bond)
Effective Yield : 8.20%


No interest is payable on these bonds. Instead they are issued at a discount. The difference between the discounted price payable now and the face value that you receive on maturity becomes your gains.

Taxation : The gains will be treated as Long Term Capital Gains. Thus, with indexation benefit over 8 years, the net tax liability may be nominal or even nil (depending on the inflation during this period).
TDS : No TDS is applicable. 

Investment Period : Jan 17 to 28, 2013

Issuance : In demat form
Rating : AAA/Stable by CRISIL; LAAA by ICRA; AAA(ind) by FITCH and AAA by CARE

This is a safe investment to put in lump-sum money for long term needs such as retirement, children's education/marriage, etc. Considering that tax may be nominal, the yield of 8.20% is quite attractive.

 

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