NHAI opens its Bumper Public Issue of Tax Free Bonds tomorrow i.e. Dec 17, 2015.
At Rs.10,000 crores, it is more than double the size of the biggest issue till date [Rs.4532 crores from IRFC]; and a giant compared to a mere Rs.700 crores each raised by NTPC, PFC and REC.
These tax free bonds have been in HUGE demand. As such, till now many investors have been thoroughly disappointed with their final allotment.
But, with a gigantic issue from NHAI, most investors should be successful with their bids.
Bond Tenure : 10 years and 15 years
Face value : Rs.1,000 per bond
Minimum subscription : Rs.5,000 (5 bonds of Rs.1,000 each)
Issue period : Dec 17 to Dec 31, 2015 (with an option for early closure or extension)
Rate of interest :
Retail Investors : 10-yr bonds - 7.39%. 15-yr bonds - 7.60%.
Other Investors : 10-yr bonds - 7.14%. 15-yr bonds - 7.35%.
Interest payment : Payable annually
Retail Investors : Individuals and HUFs investing up to Rs.10 lakhs.
High Net Worth Individuals : Individuals and HUFs investing more than Rs.10 lakhs.
(Note: NRIs are not eligible to apply for these bonds.)
Issue size : Base amount = Rs.1000 crores; Over-subscription = Rs.9000 crores. Total size = Rs.10,000 crores.
Allotment : 40% of the issue size is reserved for retail investors, which would be allotted on 'First Come First Serve' basis
Rating : CRISIL AAA/Stable, ICRA AAA, CARE AAA and IND AAA [These ratings indicate the highest degree of safety regarding timely servicing of the debt and lowest credit risk.]
Liquidity : To be listed on BSE and NSE
Loan : Borrowing permitted by pledging these bonds
Put / Call : No put or call option
Form : Both in Physical and Dematerialized form
Nomination : Allowed
Permanent Account Number (PAN) : Mandatory
NOTE
1. Liquidity: Since trading in bonds is normally not very active, one cannot expect too much liquidity when listed. Therefore, if you can afford to lock-in your money for 10 or 15 years, such bonds are a good choice to earn tax-free income. However, one plus point with NHAI's issue is its mammoth size. Therefore, relatively it will enjoy far better liquidity than most other bonds.
2. Taxation: The tax-free aspect is for the interest income only. Therefore,
a) investment in these bonds does NOT qualify for deduction u/s 80C; and
b) if you sell before maturity, the capital gains will be taxable.
Short-term capital gains (holding period up to 12 months) will be added to your income and taxed as per your slab rate. Long term capital gains (holding period more than 12 months) will be taxed @10%. These bonds are NOT eligible for indexation benefit.
IMPORTANT
Interest rates on tax-free bonds are fixed, based on the G-Sec (Govt. Securities) interest rates prevailing around the time of the public issue.
Despite the policy interest rate cut of 0.5% announced by RBI in Sept, there hasn't been any significant drop in the market interest rates. Therefore, the interest rates offered on various tax free bonds issued this year, have more or less been in the same range.
This is reflected in the fact that NHAI has slightly higher interest rates of 7.39% and 7.60% as compared to NTPC / PFC (7.36% and 7.53%), IRFC (7.32% and 7.53%) and REC (7.14% and 7.34%).
The rate reduction by RBI was quite significant. Hence, no further moderation in interest rates is expected in the next few months. As such, the future issues of tax free bonds would most probably be offered at around the same rates as the recent issues.
However, if the banks drop their base rates or the Govt reduces the interest rate on Small Saving Schemes, then the G-Sec rates would also drop. This could result in lower interest rates on future issues of tax free bonds.
RECOMMENDATION
Therefore, from the point of view of
(a) almost peak interest rates,
(b) chances of full or much higher allotment, and
(c) easy liquidity in future due to large size,
this is definitely an excellent tax free bond to apply for; PROVIDED your investment time horizon permits and you are in the higher income tax bracket.
At Rs.10,000 crores, it is more than double the size of the biggest issue till date [Rs.4532 crores from IRFC]; and a giant compared to a mere Rs.700 crores each raised by NTPC, PFC and REC.
These tax free bonds have been in HUGE demand. As such, till now many investors have been thoroughly disappointed with their final allotment.
But, with a gigantic issue from NHAI, most investors should be successful with their bids.
NHAI's Bumper Public Issue of Tax Free Bonds
NHAI (National Highways Authority of India) is an autonomous body under the Ministry of Road Transport & Highways, Govt. of India. Details of the Bumper Tranche I of its public issue of Tax Free Secured Redeemable Non-Convertible Bonds, for the financial year 2015-16, are given below:Bond Tenure : 10 years and 15 years
Face value : Rs.1,000 per bond
Minimum subscription : Rs.5,000 (5 bonds of Rs.1,000 each)
Issue period : Dec 17 to Dec 31, 2015 (with an option for early closure or extension)
Rate of interest :
Retail Investors : 10-yr bonds - 7.39%. 15-yr bonds - 7.60%.
Other Investors : 10-yr bonds - 7.14%. 15-yr bonds - 7.35%.
Interest payment : Payable annually
Retail Investors : Individuals and HUFs investing up to Rs.10 lakhs.
High Net Worth Individuals : Individuals and HUFs investing more than Rs.10 lakhs.
(Note: NRIs are not eligible to apply for these bonds.)
 |
| BUMPER Public Issue of Tax Free Bonds worth Rs.10,000 crores from NHAI |
Issue size : Base amount = Rs.1000 crores; Over-subscription = Rs.9000 crores. Total size = Rs.10,000 crores.
Allotment : 40% of the issue size is reserved for retail investors, which would be allotted on 'First Come First Serve' basis
Rating : CRISIL AAA/Stable, ICRA AAA, CARE AAA and IND AAA [These ratings indicate the highest degree of safety regarding timely servicing of the debt and lowest credit risk.]
Liquidity : To be listed on BSE and NSE
Loan : Borrowing permitted by pledging these bonds
Put / Call : No put or call option
Form : Both in Physical and Dematerialized form
Nomination : Allowed
Permanent Account Number (PAN) : Mandatory
NOTE
1. Liquidity: Since trading in bonds is normally not very active, one cannot expect too much liquidity when listed. Therefore, if you can afford to lock-in your money for 10 or 15 years, such bonds are a good choice to earn tax-free income. However, one plus point with NHAI's issue is its mammoth size. Therefore, relatively it will enjoy far better liquidity than most other bonds.
2. Taxation: The tax-free aspect is for the interest income only. Therefore,
a) investment in these bonds does NOT qualify for deduction u/s 80C; and
b) if you sell before maturity, the capital gains will be taxable.
Short-term capital gains (holding period up to 12 months) will be added to your income and taxed as per your slab rate. Long term capital gains (holding period more than 12 months) will be taxed @10%. These bonds are NOT eligible for indexation benefit.
IMPORTANT
Interest rates on tax-free bonds are fixed, based on the G-Sec (Govt. Securities) interest rates prevailing around the time of the public issue.
Despite the policy interest rate cut of 0.5% announced by RBI in Sept, there hasn't been any significant drop in the market interest rates. Therefore, the interest rates offered on various tax free bonds issued this year, have more or less been in the same range.
This is reflected in the fact that NHAI has slightly higher interest rates of 7.39% and 7.60% as compared to NTPC / PFC (7.36% and 7.53%), IRFC (7.32% and 7.53%) and REC (7.14% and 7.34%).
The rate reduction by RBI was quite significant. Hence, no further moderation in interest rates is expected in the next few months. As such, the future issues of tax free bonds would most probably be offered at around the same rates as the recent issues.
However, if the banks drop their base rates or the Govt reduces the interest rate on Small Saving Schemes, then the G-Sec rates would also drop. This could result in lower interest rates on future issues of tax free bonds.
RECOMMENDATION
Therefore, from the point of view of
(a) almost peak interest rates,
(b) chances of full or much higher allotment, and
(c) easy liquidity in future due to large size,
this is definitely an excellent tax free bond to apply for; PROVIDED your investment time horizon permits and you are in the higher income tax bracket.
