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.
264 thoughts on “IDFC Infrastructure Bonds FAQ”
IDFC infrastructure bonds have been allotted to demat account today 13/11/2010. The deemed date of allottment is 12/11/2010 and it has been locked-in till 12/11/2015.
Thanks for letting us know Loney! Really appreciate it; a lot of people were concerned about not seeing the bonds allotted so this info will come handy.
whether allotment of bonds completed ? IF NOT, WHEN WILL BE ALLOTMENT DONE ?
I HAD NOT RECEIVED BONDS IN MY D-MAT ACCOUNT
No one has reported that they have got the bond yet, so you’re not alone. I don’t think there has been any news on when the allotment will be done, and when they declare the dates I’ll update this or when someone receives these bonds they will probably leave a comment here, and everyone will know.
I applied for IDFC bond thorugh ICICI direct. But did not get any single share. Infact order histiory says that share allocated=0. Was the process for bond same as IPO.
Please advice if I will be getting bonds or not.
The process for allotting IPO and bonds are different, and in the case of these bonds the allotment hasn’t been done for anyone yet, so you are not the only one. When the dates are declared or allotment is done I will update the post or leave a comment here, and request others who applied for it to leave a comment when they see allotment in their accounts, so that everyone else knows. Thanks!
More than twentydays have passed since the closing of the infra bond. When is it going to be allotted and why is this delay
After how much day will the bond come
I have a few simple queries:
1. Do I need to pay money every year in order to get tax savings every year on IDFC bonds or is it just one time affair that closed on 22 Oct 2010?
2. Do I get a physical Bond certificate from Sharekhan or IDFC for issuance of bond to me or will it reflect in my online demat account?
3. In case I dont get a physical (Paper) bond, how do I claim tax savings?
Thanks in Advance
1. It’s just one time for this year.
2 & 3. You will see it online in your demat account, and folks who’ve called ICICI Direct for tax proof have been told that they’ll get a physical cert. that can be used, so you can check with Sharekhan.
Thanks for the info.
Thanks a lot for replying Sandeep, and if possible, could you please leave a comment here when you receive the physical certificate.
There are quite a few people here waiting for it, so that way we will know that people have started receiving it.
When these bonds will appear of Demat A/c, I have applied and still not received?
Mine also, the same case
Nothing in ICICIDIRECT account yet….. If anybody has got, please update.
I wanted to purchase infra structure bonds of Land T or any other firm, bur last date for L and T infra structure bond is over. Will it again launch Infra structure bond or will any other firm launch the same for this financial year?
Yes Uday – the IDFC issue didn’t get a good response, and they have said that they will issue these bonds again before March 2011. You might even get a higher rate.
Yes you are right. Also there are new companies like LIC and SBI coming up with the bond issues. So definately there are lot of options and a lot of time ( 5 months) so there would be more issues to come.
I have applied IDFC bonds thru icici direct online. Will i get any physical copy of the bond from IDFC, if not what document i need to use for tax saving proof purposes??
I had the same query. I called Icici to know that “one should be receiving the physical bond certificates on approval which I should be using for tax purpose. This should take some 4 weeks after cutoff date. ”
Now, like you, I am also wondering that the physical would have been better that the receipt would have been awailable immediately. Let us all know if you heard something else from them.
Thanks for replying Ajay. I originally thought that they wouldn’t send a certificate based on what I read but if ICICI Direct told you they are going to send you a certificate then that must be the case.
Wouldn’t buying online make it easier to hold and sell the funds at a later date though? The need for the proof is still not there for another 5 or 6 months so as long as they don’t goof up sending it – it’s okay.
Dear Sir / Madam,
As per information
You can buy them in physical form also.
You can also subscribe to the Bonds in physical form by following these simple steps:
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.
However I was told you have to submit original cancelled cheque along with application form and not self attested copy of cancelled cheque. Without original cancelled cheque your application will be rejected.
Kindly advice was this correct.
The issue got over on the 22nd, but based on my knowledge they do require original canceled checks, and can’t do with an attested copy. If anyone else has been able to apply with an attested copy then please leave a comment and let us know.
If I apply L&T Infrastructure/IDFC Bonds in the name of my wife and make the payment from my side, shall my wife will get the tax benefit U/S 80CCF ?
As far as I know the bondholder should get the tax benefit, so that way I’d expect your wife to get the deduction.
If anyone knows any different then please leave a comment.
My question are
1. Can we opt for nominee or not ? If yes then how.
2. What is the mean of More than one applicant..
There is a facility for nomination Anuj, but I don’t know about the rest of your questions. Sorry, I hope someone else can answer.
Dear Manshu ji,
What is buyback facility in IDFC Infrastrucsture Bonds? Can I invest Rs.20,000/- in series 4 or series 3? Is it better to invest more than Rs.20,000/- in these bonds?
Series 3 & 4 have a buyback after 5 years. I’d say that since the big benefit of investing in this type of bond is getting the extra tax saving, there isn’t that much merit in investing more than 20k.
As for Series 3 or 4, one gets you interest paid out every year, while the other gives you a slightly larger amount at the end without paying anything in between so you can evaluate based on that.
Will the IDFC issue any bond certificate to me, if I apply thru online brokerages viz sharekhan, ICICI direct etc?
I don’t think you’ll get a physical certificate if you invest online Keshav.
But some form of proof of investment should be there right? after all we have to show it to IT/Fin Dept.
Yes Sanket – you are right, my initial impression was that there’d be no certificate, but people have told me that ICICI Direct has conveyed to them about sending a physical certificate, and I think others will do it as well.
So, I stand corrected, and I am sorry about my earlier comment stating there won’t be a physical certificate.
i want to sell the IDFC injfra bonds on commision basis to my cliental group. please issue me neccesary guidilines in this regards. or to whom i may contact for the issueance of license
Thank you for detailed info on series 2 & 3 bonds. What are series 3 & series 4 provisions? I need to decide by Monday which series to invest into. So can someone please guide me?
The Series 3 & 4 provisions are that both of them have the buyback facility so you can sell your bonds after 5 years, and don’t have to keep them for ten years.
Series 3 will pay you out an interest per annum, while Series 4 will not pay an annual but on redemption – you will get 7,180 for each bond. As opposed to this Series 3 will be redeemed at Rs. 5,000 itself (as interest gets paid every year).
The yield is higher in Series 3, but one of the assumptions in calculating this higher yield is that you will re-invest the interest amount earned by you in an instrument that pays you 7.5% interest.
Tax will of course be saved in all series, so you can think about all this, and make your decision.
how does the yield for the annual interest payment scheme is more than the cumulative payment scheme, can u please do the calculation……
Okay, let me see if I can explain this now, it kind of scares me actually….but here goes.
Let’s first take the example of Series 4 for a person with a 20.6% tax rate who invested 5,000. The key thing here is that since you get your taxable income reduced by 5,000 using these bonds, and your tax slab is 20.6%, your purchase price goes down.
Here is how that looks like:
Reduction in taxable income: 5000
Tax Saved @ 20.6% 1030
Net Investment 3970
Buyback amount after 5 years 7180
Compounded Annual Growth Rate 12.58%
I calculated CAGR using the calculator on my site that you can use here:
So, this was the easy one and you saw how yield of 12.58% came. Now let’s try Series 3 which is slightly more tricky.
In this case you get interest paid out to you every year, so you use a concept called Yield To Maturity (YTM). This formula takes into account the discounted cash flow, effectively seeing how much money you will get in total, and what it’s worth today. It also assumes that whatever money you get will be reinvested with the coupon rate or 7.5% in this case.
Plug the Series 3 numbers in the YTM calculator found on this link http://www.moneychimp.com/calculator/popup/calculator.htm?mode=calc_bondytm
you will see that it gives you a YTM of 13.417% which is what it becomes worth.
The Current Price is 3970, Par Value 5000, Coupon 7.5%, Years to Maturity 5.
I don’t know how much sense I made and you can read more about YTM and IRR elsewhere to get a better understand. If I myself go any deeper then I’ll have nightmares which I am trying to avoid 🙂
If anyone else has a better way of explaining or thinks I’ve made a mistake somewhere then please let us know.
Thanks for posting much needed information. Looking at the yield table, it appears like option 3 earns better yield. But how does one really choose which option is the best? I asked the HDFC rep who was issuing the application forms, but he didn’t have any convincing answer.
Here’s how I would go thinking about it. The biggest benefit of this scheme is the tax that it saves.
Given that this is the biggest benefit, and the interest rate itself is comparable to other schemes, I’d like to get my principal back earliest so that if interest rates rise, I’m able to invest in something else. So, given that line of thought I myself will be okay forgoing the extra 0.5% in favor of getting my money back 5 years earlier. That means going for the series that doesn’t have the ten year lock in period.
The next question is whether I’d like to get interest paid every year or get the whole thing compounded annually and paid a bigger sum at the end. Personally, I’d prefer to get the interest annually to have the option to invest somewhere else or just to get an edge over the inflation which is more than 7.5%.
Given all this, if I had to invest here, I would choose the one option that gets me my money back fastest as well as pays out interest annually. That will be my thought process.
If anyone else has any other ideas then please share, and let’s hear about it.
Thank you so much Manshu. This detailed explaination makes it easier for investors to choose the right option.
Here you have talked about the buyback from the company. However the bonds are supposed to be traded on the exchanges at the end of the lockin period of 5 years. In such a situation won’t the series 1 bonds become more lucrative or return oriented given that they have:
a) 8% coupon rate
b) They can be sold at the end of the 5 year lockin.
c) If the interest rate is lower at the time of lockin tenure(5yrs) then they sell at a premium.
c)In case the interest rate increases(least likely) then one might have to keep them for the whole tenure or sell at a discount.
Please throw more light on this and revise your suggestion if any.
I am not familiar with how bond listings actually work, so I’m unable to say anything about that. In SBI thread there are two schools of thought – one that says the SBI bonds should list at a small premium of ~2% and another that says the premium should be ~10%, so I see that there are differing opinions on this, as you can probably expect with nature of these things. Given all that, I don’t know what to make of listing.