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Tax Free Bonds Public Issue season begins...

As I had metioned some time back, Rs.40,000 crores worth of tax free bonds are to be issued this year.

In this regards, NTPC is the first company to announce the Public Issue of its Tax Free Secured Redeemable Non-Convertible Bonds.

NTPC Limited is a Govt. of India enterprise. The details of its public issue of tax free bonds, for the financial year 2015-16, are given below:

Bond Tenure : 10 years, 15 years and 20 years
Face value : Rs.1,000 per bond
Minimum subscription : Rs.5,000 (5 bonds of Rs.1,000 each)
Issue period : Sept 23, 2015 to Sept 30, 2015 (with an option for early closure or extension)

Rate of interest
10-yr bonds - 7.36%. 15-yr bonds - 7.53%.  20-yr bonds - 7.62% [For retail investors]
10-yr bonds - 7.11%. 15-yr bonds - 7.28%.  20-yr bonds - 7.37% [For others]
Interest payment : Payable annually

Retail Investors : Individuals, HUFs and NRIs (on non-repatriation basis) investing up to Rs.10 lakhs.
High Net Worth Individuals : Individuals, HUFs and NRIs (on non-repatriation basis) investing more than Rs.10 lakhs.

Whoopee!! Public Issues of Tax Free Bonds are here again...

Issue size : Base amount = Rs.400 crores; Over-subscription = Rs.300 crores. Total size = Rs.700 crores.
Allotment : 40% of the issue size reserved for retail investors which will be allotted on 'First Come First Serve Basis'

Rating : CRISIL AAA, ICRA AAA (stable), CARE 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 : In Dematerialized form ONLY
Nomination : Allowed

Permanent Account Number (PAN) : Mandatory

1. Since trading in bonds is normally not very active, don't expect too much liquidity when listed. Therefore, if you can afford to lock-in your money for 10/15/20 years, this makes a good choice to earn tax-free income.

2. The tax-free aspect is only for the interest income. If you sell before maturity, the capital gains will be taxable. Short-term capital gains will be added to your income and taxed as per your slab rate. Long term capital gains will be taxed @10%. These bonds are NOT eligible for indexation benefit.

The interest rates on tax-free bonds are fixed, based on the G-Sec (Govt. Securities) rates, prevailing around the time of the public issue.

There is a high probability that Reserve Bank of India may reduce the policy interest rates in the near future. As such, the forthcoming issues of tax-free bonds from other companies could possibly be at lower interest rates. As such, this might be a good time to make the investment.

What if you miss investing in these new issues of tax free bonds?

Worry not:

You can any day, any time invest through the secondary market. Tax free bonds are listed on the stock exchanges. Read Still Craving For Tax Free Bonds?

If I were you, I would skip investing in the tax free bonds.

Why: Read Why Tax-Free Bonds Don't Excite Me?

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