October 12, 2010

IDFC Infrastructure Bonds FAQ

Also read about the REC Infrastructure bonds here or the IDFC Infrastructure Bonds Tranche 2 here.

The IDFC Infrastructure Bond post has thrown up some interesting questions from readers which were not part of the post itself, and while I am replying to them in comments – I thought I’d do a fresh post with 5 questions that I thought deserved a post of their own.

1. Is opening a demat account compulsory for investing in the IDFC Infrastructure bonds?

No, it is not.

When this scheme opened there was just the option to invest in it if you had a demat account, but some changes have been made (pdf) and opening a demat account is not compulsory now. You can buy them in physical form also. Their website tells you how to do this.

You can also subscribe to the Bonds in physical form by following these simple steps:

Donâ€™t fill up the demat details in the application form

Compulsorily provide the following three documents with the application form:

Self-attested copy of the PAN card;

Self-attested copy of a cancelled cheque of the bank account to which the amounts pertaining to payment of refunds, interest and redemption, as applicable, should be credited.

Self-attested copy of the proof of residence. Any of the following documents shall be considered as a verifiable proof of residence:

Ration card issued by the Government of India; or

Valid driving license issued by any transport authority of the Republic of India; or

Electricity bill (not older than 3 months); or

Landline telephone bill (not older than 3 months); or

Valid passport issued by the Government of India; or

Voterâ€™s Identity Card issued by the Government of India; or

Passbook or latest bank statement issued by a bank operating in India; or

Leave and license agreement or agreement for sale or rent agreement or flat maintenance bill; or

Letter from a recognized public authority or public servant verifying the identity and residence of the Applicant.

2. Is the interest earned from the IDFC Infrastructure bond tax-free?

While IDFC Infrastructure bonds may not attract TDS – the interest itself is not tax – free. It’s only the Rs. 20,000 you get reduced from your taxable salary that helps save tax.

3. Has the closing date to invest in IDFC Bonds extended?

Yes, the closing date has been extended from 18th October to 22nd October.

4. When do the bonds start trading in the stock exchange?

After the initial lock – in period of 5 years is over, the bonds will list on the NSE and BSE, and start trading there.

5. Which option has the highest yield?

Yield table from the website. Now keep in mind this is just the yield, the lock in periods differ between various series, and that needs to be taken into account while making your decision, however since my earlier post didn’t have this yield table I am including it here.

Click here to read the earlier review of the IDFC Infrastructure Bond.

Coal India IPO price band fixed between Rs.225 and Rs.245

The Coal India IPO price band has finally been fixed at Rs. 225 – 245, and there is going to be a customary 5% discount to retail investors.

So looks like the gray market was quite close because they had earlier talked about a range of Rs. 225 – Rs. 270. The EPS in 2010 was Rs. 15.56 so the P/E multiple at the higher and lower end of the price band is 14.46 and 17.3, so looks like the ministry decided to leave something on the table for investors. I think you are going to see huge over-subscription numbers on this Coal India IPO.

You can read my earlier review of Coal India IPO here.

Infrastructure Mutual Funds List

Infrastructure mutual funds came in vogue a few years ago, and there are plenty of mutual funds that can help you get exposure to the infrastructure sector if you want to.

Here is a list of infrastructure mutual funds in India, and if you feel I’ve missed any, please let me know and I’ll update the list. I’ve taken the returns data from the individual websites, scheme information documents, and in some cases Value Research, so they may not correspond to exactly the same period, but should still give a decent idea on how each of these funds have performed in the past.

Infrastructure Mutual Funds in India

1. Reliance Infrastructure Fund: Here is a mutual fund that I wrote about during its NFO early last year. It has returned 10.31% for the past year, and since it’s not that old, the 3 year or 5 year returns are not available for it.

2. Tata Infrastructure Fund: This is a slightly older fund and was listed in 2004. The one year return for this fund has been 17.54%, 3 year returns have been 6.35% and 5 year returns have been 21.81%. It has done better than the BSE Sensex in all these periods.

3. ICICI Prudential Infrastructure Fund: This fund gained 12.20% in the last year, 9.64% in the last 3 years, and 24.47% in the last 5 years.

4. UTI Infrastructure Fund: This fund also came out in 2004, and returned 11.79% last year, 7.67% in the last 3 years, 23.65% in the last five years.

5. HDFC Infrastructure Fund: This fund was started in March 2008, so like the Reliance Infrastructure mutual fund, there isn’t as much past returns information available for it.

6. Birla Sun Life Infrastructure Fund: This fund was started in March 2006; the one year returns are 24.41%, and the 3 year returns are 4.49%.

7. Sahara Infrastructure Fund: The Sahara Infrastructure fund was launched in April 2006, and the one year return for this fund is 9.43%.

8. Canara Robeco Infrastructure Fund: The Can Infrastructure fund was launched in November 2005, and the one year return for the fund is 26.02%, while the 3 year returns are 7.00%.

9. Bharti AXA Focused Infrastructure Fund: This fund was launched early this year, so there isn’t much performance data on it yet.

10. SBI Infrastructure Fund: This is the only close ended infrastructure fund mentioned here so far, which means that you can’t buy and sell the fund any time, and there are only certain periods of time when the fund opens for subscription, and when you can redeem your units. However the fund did start in June 2007 with a three year lock-in period, so it should be available for purchase now.

11. Tata Indo-Global Infrastructure Fund: This is a slightly unique fund in the sense that it invests in infrastructure in not only India, but other emerging countries as well. The fund was established as a close ended scheme in October 2007 for a 3 year period, and would’ve converted to an open ended fund after the period. Looking at the portfolio as at 31st March, it appears that the fund has invested 77.95% in Indian equities, and 19.75% in foreign securities which includes Invesco Infrastructure C and Credit Suisse Emerging Market Infrastructure Eq0-B. Since inception the fund has returned a total of -9.72% (as on March 31, 2010).

12. LIC Infrastructure Fund: The LIC Infrastructure fund was launched in February 2008, and has returned 13.85% in the last year. The return since inception has been 2.36%.

13. Benchmark Infra BeeS: This is actually an ETF not a mutual fund, but is included here as it gives you equity exposure to the infrastructure sector. The investment objective of the Scheme is to provide returns that, before expenses, closely correspond to the total returns of the securities as represented by the CNX Infrastructure Index. The index includes companies belonging to Telecom, Power, Port, Air, Roads, Railways, Shipping and other Utility Services Providers

As you can see there are quite a few infrastructure funds already available, and if you think I missed any, please leave a comment, and I’ll update the post.