Friday, August 16, 2013

Tax-free bonds for FY 2013-14 coming soon...

Govt. has now announced the guidelines for the issue of tax-free, secured, redeemable, non-convertible bonds for the FY 2013-14.

The salient features of these tax-free bonds would be as under:

1. Term : 10, 15 and/or 20 years

2. 40% of the issue shall be earmarked for Retail Individual Investors (i.e. individuals, HUFs and NRIs investing less than Rs.10 lakhs)

3. PAN No. : Mandatory


4. Interest Rate : There will be a ceiling on the interest rates based on the reference Govt. securities rate prevailing around the time of the issue.
- For AAA rated borrowers the limit would be 0.55% less than the reference G.Sec rate for retail investors (For others the limit fixed is 0.80% less than the reference G.Sec rate)     
- AA+ rated borrowers can offer 0.1% more than the limit for AAA rated borrowers
- AA or AA- rated borrowers can offer 0.2% more than the limit for AAA rated borrowers 

The higher rate for retail investors will not be available in case bonds are transferred to non-retail investors.

Also, the above rates are for annual payments. For semi-annual payments, the rates would be 0.15% lower.

5. Following companies have been permitted to issue the aforesaid tax-free bonds:
- IIFCL and IRFC - Rs.10,000 crores each
- HUDCO, REC, NHAI and PFC - Rs.5,000 crores each
- NHB - Rs.3,000 crores
- NTPC - Rs.1,750 crores
- NHPC - Rs.1,000 crores
- IREDA - Rs.1,000 crores
- Ennore Port - Rs.500 crores
- Airport Authority of India - Rs.500 crores
- Cochin Shipyard - Rs.250 crores

Based on the above-mentioned guidelines, these companies will now plan out the issue of their tax-free bonds over the next around seven months remaining in this Financial Year.

Depending on the rates offered, one would have to take a view whether these bonds are worth investing or not. Of course, due to relatively low liquidity, one should be prepared to stay invested till maturity.

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