L&T Infrastructure Bonds Review

by Manshu on October 18, 2010

in Fixed Deposits

Close on the heels of the IDFC Infrastructure bonds – L&T is also issuing infrastructure bonds beginning October 15th 2010, and closing on November 2 2010.

L&T Bonds: Tax Saving Infrastructure Bonds

These are classified as infrastructure bonds under Section 80 CCF which means that investing in them will reduce your taxable income by Rs. 20,000.

This increases your effective yield because along with the interest you earn on these infrastructure bonds, you save on tax as well.

These bonds are good for a maximum of Rs. 20,000 as far as the tax saving aspect is concerned, so if you buy bonds worth Rs. 30,000 and nothing else, even then the maximum you can reduce from your taxable income is Rs. 20,000 because that is the cap on tax benefits on infrastructure bonds.

L&T Infrastructure Bonds Features

There are 4 series of L&T Bonds, and though these bonds have a term of 10 years, there is an option of a buyback after 5 years or 7 years.

The interest rates, and effective yields of different plans are shown below:

Series Tax Bracket 1 2 3 4
Face Value —- Rs. 1,000 Rs. 1,000 Rs. 1,000 Rs. 1,000
Interest Payment —- Annual Cumulative Annual Cumulative
Interest Rate —- 7.75% 7.75% 7.50% 7.50%
Maturity —- 10 years 10 years 10 years 10 years
Buyback in years —- 7 years 7 years 5 years 5 years
Yield on Buyback 30.9% 15.23% 13.59% 17.20% 15.75%
20.6% 12.31% 11.36% 13.42% 12.58%
10.3% 9.86% 9.44% 10.23% 9.86%

L&T Bonds Minimum Investment

The minimum investment needed for you to invest in these bonds is Rs. 5,000 because you have to apply for a minimum of 5 bonds, and the face value of each bond is Rs. 1,000.

Open and Close Date

Subscription opened on October 15th, and will close on November 2nd 2010.

Credit Rating

The L&T bonds have been rated CARE AA+ by CARE and LAA+ by ICRA which indicate high credit quality and that the rated instruments carry low credit risk.

How can you invest in the L&T Infrastructure bonds?

You can invest in these bonds either in the physical form or electronically through brokers like ICICI Direct. You can buy a form through one of the several agents across the country and invest in it through them as well.

Here is a list of banks listed on their website that can give you more information as well:

  • Axis Bank
  • DBS Bank
  • HDFC Bank
  • HSBC Bank
  • ICICI Bank
  • IDBI Bank
  • ING Bank
  • SBI Bank

They also have this cool link on their special website for this bond where you can enter in your contact details and they will contact you and help you.

If any of you do decide to contact them then I am really interested to know your feedback because I tried to get in touch with the numbers given in the IDFC website, and tried at least 10 times to no avail. I’d like to know if this is any better.

Tax on interest earned from the L&T Infrastructure bond

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.

L&T Infrastructure bonds to list on NSE after 5 years

The Bonds are proposed to be listed on NSE, and can be traded after the initial 5 years lock-in period. After this lock-in period, the holders can also pledge the Bonds with banks for availing financial assistance.

You don’t need a demat account to invest in these bonds

L&T will offer you the option to hold the Bonds either in Dematerialized or Physical Certificate form.

NRIs can’t apply in the L&T Bonds

Non-resident investors including NRIs, FIIs and OCBs are not eligible to participate in the Issue.

Conclusion

These were some salient features of the L&T bond issue, and I hope you found this useful in order to make a decision on whether you want to opt for them or not. Keep in mind that IDFC has a similar issue running, and if you have already applied for that then you won’t get any additional tax benefit (over Rs. 20,000) by applying for this issue as well.

If you have any questions, leave a comment, and the community here will try to answer them for you.

Click here to read about the IDFC bond issue

Click here to read about the SBI bond issue

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