NHAI Tax Free Bonds

National Highway Authority of India (NHAI) is usually known for issuing Section 54EC bonds, but for the first time they are issuing tax free bonds as well.

Now, a lot of people confuse tax savings or no TDS with tax free, but these are truly tax free bonds, which means that the interest from these bonds is tax exempt – you don’t have to pay any tax on the interest regardless of your income tax bracket.

The bonds will list on the BSE and NSE, and if you sell them on the exchange and make capital gains on them, then that will be taxable. Listing of the bonds doesn’t however mean that the bonds will be issued in dematerialized form only and you will compulsorily need a demat account.

NHAI bonds will be issued in both physical and demat form, so people who don’t have demat accounts can also buy these bonds. There are two series of bonds – one with a ten year maturity, and the other with a 15 year maturity. The first series has an interest rate of 8.20% and the second series has an interest rate of 8.30%, both the series will pay interest annually.

Since some of the best bank interest rates are at 10% right now – you can see that for people in the 30% or 20% tax bracket – this issue has got great yield.

NHAI Tax Free Bonds
NHAI Tax Free Bonds

NHAI tax free bonds have been rated CRISIL AAA/Stable, CARE AAA, and Fitch AAA by CRISIL, CARE and Fitch respectively. These are very high ratings, and although NHAI has made losses in the last three years – it’s easy to see how these credit agencies assigned these bonds the highest rating.

This is a secured issue from a company that comes under the Government of India, and as such it’s hard to see how NHAI could default on its debt obligation.

I think this is a good issue especially for people in the 30% tax bracket, and won’t be surprised if it gets over subscribed in the first few days itself. This is especially so because interest rates can’t remain this high forever and this issue allows you to lock on to these high rates for 10 or 15 years, which is quite a good return for a safe debt instrument. And even NRIs can invest in these bonds, so to the extent they can manage the application process, this will be an attractive offer for them as well.

SBI Capital  Markets, AK Capital Services, MCS Limited, ICICI Securities and Kotak Mahindra Capital are the lead managers to the issue so you should find the application forms in their offices. Other investment firms like Karvy should also have the application forms, and I think some of these companies will also enable it so that you can apply for the NHAI tax free bonds online, but I don’t have a definite list yet.

I’m sure as more information comes in – you will leave comments and I’ll update the post with where exactly you can find the application forms etc. at the time.

Meanwhile, many thanks to Rakesh Jain who let me know about this issue much in advance, and let’s hear any other questions or observations you have about the NHAI issue in the comments.

Application Form of NHAI Tax Free Bonds

Update: Deleted the part about allotment being on a first come first serve basis per Shiv’s comment below.

176 thoughts on “NHAI Tax Free Bonds

  1. Hi

    Thanks for providing this update. For me its a new thing. Do we have any other Tax exempted bonds in past which are available for trade in stock exchange ?

      1. PFC also came up with the Tax-Free issue, just before HUDCO launched it. Both PFC as well as HUDCO had 8.09% (10 years) & 8.16% (15 years) as the coupon rate.

        PFC is also expected to launch one more Tax-Free issue by end of the month on similar lines as NHAI is. Coupon Rate is also expected to be the same at 8.20% & 8.30%.

          1. Just now got the notification that PFC has launched the same Tax Free bonds.
            Interest Rate: Same
            Credit Rating: Same
            Issue Opens on 30-Dec
            Issue Closed on 16-Jan
            Minimum Applictaion Amount = 10,000 (1,000 X 10 bonds)

  2. Hi Manshu… “First-Come-First-Serve” is for Institutions and HNIs only and not for Retail Investors investing less than Rs. 5 lacs. They will get allotment on Pro-Rata/Proportionate basis.

    Also, for a change, these bonds allow NRIs to invest. NRIs would be too tempted to invest their money in a 8.2% or 8.3% Tax-Free instrument. I’m 100% sure that the Institutional Category & HNIs Categoty will get over-subscribed on the 1st day itself and probably the Retail Categoty as well.

    1. Hi Shiv,

      From the prospectus I see that they are going to classify investors in 3 categories, and retail investors come under the third category. And this is what it has to say about allotment:

      Applicants belonging to the Category III, in the first instance, will be allocated Bonds upto [●]% of Overall Issue Size on first come first serve basis (determined on the basis of date of receipt of each application duly acknowledged by the Bankers to the Issue);

      Further ahead it says this:

      In case of an oversubscription, allotments to the maximum extent, as possible, will be made on a first-come
      first-serve basis and thereafter on proportionate basis, i.e. full allotment of Bonds to the applicants on a first
      come first basis up to the date falling 1 (one) day prior to the date of oversubscription and proportionate
      allotment of Bonds to the applicants on the date of oversubscription (based on the date of submission of
      each application to the Bankers to the Issue, in each Portion)

      My interpretation is that if the reach full subscription on the 3rd day for that category then they will allot full quota to the applicants in the first two days, and then proportional to the applicants on the third day.

      This is on page 151 on the prospectus that I have.

      Did they issue a later version in which this condition changed or do you have any other source of info that tells you that all retail investors will get proportional investment regardless of when they invest?

  3. Hi Manshu.. “Terms of the Issue” as well as the Application Form itself says so. It says “Basis of Allotment: For Category I and II on first come first serve basis (determined on the basis of date of receipt of each application duly acknowledged by the Bankers to the Issue). For Category III on proportionate basis.”

    Instruction No. 45.2 in the Application Form states “For Category III, the allotment shall be done on a proportionate basis.” It also says “In case of oversubscription in Category I Portion and Category II Portion, allotments to the maximum extent, as possible, will be made on a first-come first-serve basis and thereafter on proportionate basis, i.e. full allotment of Bonds to the applicants on a first come first basis up to the date falling 1 (one) day prior to the date of oversubscription and proportionate allotment of Bonds to the applicants on the date of oversubscription (based on the date of submission of each application to the Bankers to the Issue, in each Portion). In case of oversubscription in Category III Portion, all valid applications received during the Issue Period, shall be treated at par and considered for allotment on a proportionate basis.”

    1. Ok yeah looks like the later version changed the terms and I didn’t have that. Thanks for pointing that out Shiv – can you please send me an email with the doc?

      Thanks!

  4. Sure, here it reaches you. More detailed analysis on Monday. I’m dead tired servicing investors with IDFC and L&T Infra Bond issues. There was huge response for both the issues. Probably they marketed it quite nicely.

    1. DTC should not have any impact on these bonds. The government would really be cheating investors if they changed something like this on a product that people only buy because of the tax benefit.

      Online, it might come in ICICI Direct, though not sure yet, will update once I find out.

  5. Thanks Manshu for a quick response. Yes I also feel as NRI’s have allowed now, they would also provide online facilities. thanks again.

  6. It really appears to be a reasonably safe investment with reasonable returns. However owing to chances of oversubscription and proportionate allotment, it has become difficult to quantify how much to invest. Any suggestions?

  7. IFCI Ltd, one of India’s oldest financial institution is offering Tax Free Infrastructure Bonds (Series IV) the issue for which is open till 16 Jan 2012. Very recently the issues of L&T as well of that of IDFC have closed. I came across the Blog http://www.infrastructurebond.in, which only shares general information on Tax Saving Infrastructure Bonds.

    1. Hi Aakash.. Infra Bonds do not fall under 80D. They carry tax benefit u/s 80CCF and 80D is for Health Insurance. The interest earned on NHAI bonds is fully exempt from Income Tax u/s 10 (15) (iv) (h) of the Income Tax Act, 1961.

    2. NHAI Tax-Free Bonds investment does not provide any tax exemption under any section of I-T Act. Its just that the interest earned is tax-free. Whereas, Infra Bonds provide tax exemption u/s 80CCF but the interest earned is fully taxable as per the investor’s tax slab.

  8. if i am getting 9.5% in Bank FD at a lock-in of 555 days, why should i take NHAI at alock-in of 10 years. i fall in 30% tax bracket.

    1. Dear anupma if you are in tax bracket of 30%then your 9.5%fd will give you actual
      return=6.65 (9.5 – 30% of9.5) Where as this being a tax free instrument your returne will be 8.2 or 8.3% depending upon the term you choose.

    2. In the 30.9% Tax Bracket, effective yield works out to be 12.01% (8.30% = 12.01% * (1-0.309)). Also, you are getting 9.5% because at present Inflation is high, Interest Rates are high. Interest Rates will not remain this high for a very long period and this safe issue offers the investors an opprtunity to lock-in at quite high Tax-Free interest rates of 8.30% & 8.20%, which will remain constant throughout the tenure.

      9.5% interest rate might fall to 7.5%-8% after 555 days, then your average returns would be lower. Now, compare 9.5% & 12.01% and you will find your answer yourself.

      1. Guys!

        I did a very detail calculation/cost-benefit analsyis and here are my observations:
        1. For Bank FD, please remember that the interest is quarterly compounded, whereas most probably NHAI will provide simple interest in yearly basis.
        2. It totally depends upon how you will invest the yearly interest earned from NHAI tax free bonds. If you don’t invest that well, the effective yield from NHAI bond (in 10 years) can be less than bank FD even if you pay 30.9% tax on interest earned from FD.

        if you need detail calculation excel, let me know and i will send you in email.

        1. Amlan Basak, All

          For 10 years, 8.2% p.a. Simple Interest (as offered by NHAI Tax Free Bond) is BETTER than 9.5% compounded quarterly (as apparently offered by some banks) for an individual whose income falls in 30.9% tax bracket.

          The effective rate of interest Taxed Avenue comes out to be 4.26%
          The effective rate of interest Tax Free Avenue comes out to be 9.84%

          1. Currently SBI is giving 9.25% for 10 years FD.
            let’s assume you invest 1,00,000.
            With quarterly compounding interest the maturity amount will be 2,49,544 (though it is surprising but it is the power of compounding).
            Interest component = 1,49,544
            Tax @30.9% = 46,209
            So, effective maturity value = 1,00,000+1,49,544-46,209=2,03,335

            for NHAI, simple interest of 8.2% will yield 82,000 in 10 years
            So, final amount = 1,82,000
            It is less by 21,335

            Please let me know if I made any mistake in the calculation.

            (Note: I am not considering how we are going to invest the 8200 per year that we will get as interest)

            1. First of all, on a simple interest basis you found out that It is less by 21,335.

              Now take a case, When you invest your yearly interest of 8200/- and put that at 6% at Qtr compunding then you will earn 6000 (Keeping rate 6% assuming that you’re in 30% bracket and post tax yield will be 6%). This is for first year and investment for next 9 years. Now think interest earnings on all years. I am sure that will lead to 30-35k.
              But if you will take FDs from IDBI Bank (which is also SAFE bank like SBI) and Giving 9.5% return with Qtr compunding. Hence compunding return would be around 252304 and post 30.9% tax -> 206612.8. Which is almost same if you will invest NHAI yearly interest at 8-9%. More, IDBI is having ZERO penalty for premature FD Exit.

              I think, only point to invest in NHAI is SAFETY but which we can assume with IDBI like bank.

              1. But investing the yearly interest say in a FD will give you earnings only after the bond maturity. For ex the 2nd year investment (if done in a 10 year fd) will give you maturity only after 12 years from now and so on. should that also not be considered?

            2. Thanks to all for providing different aspects associated with this issue.

              However, i would still like to agree with the mathematical solution of Amlan. Alman, your calculation would be further comparable with the SBI FD example that you have chosen if calculations are made with 8.30% which is being offered on the cumulative tranche of the NHAI bond.

            3. Hi Amlan,
              catch is , you forgot tax on your 1 Lakh(principle). So consider the persons those want to save 20000 more from tax (apart from normal 1Lakh) they could get benefit from infra bond.

              -sumit

  9. Hi Manshu.. Like IDFC Infra Bond and L&T Infra Bond issues, please check another Web Link to download the NHAI Tax-Free Bond Application Forms online:

    http://www.sbicapsecu.co.in/pdfstamping/NHAI_KUKREJA.aspx

    Note: Just want to tell the investors that the photocopies of a form cannot be used to invest, as each form has a unique application no. To get multiple forms in order to invest in different names, just click multiple times.

    In case any reader has any query regarding this link (E-Form), NHAI Tax-Free Bonds as such or wants to invest in NHAI Tax-Free Bonds, Call/SMS 9811797407 (Gurgaon, Delhi or Noida) or mail us at ojascap@gmail.com

  10. dear sir,
    if invester invest in nhai bonds who would fall in 30% tax bracket then a invester have a better option in FMP(fixed maturity plan) because current fmp are giving 9.7-9.8% yield and they have indexation benefit in fmp it would approx 9% after indexation.so it would be a better option.
    plz clarify it sir.

    ARIHANT JAIN
    9529222992

    1. Arihant Rightly said, FMP are an option with 9.7-9.8% yield, indexation benefit. But as of today the FMP with max. no of days open is , ICICI Prudential FMP Series 60-27M Plan I which is for 835 days or 27 months opening on 26 – Dec closing on 09 – Jan.
      NHAI are bonds for 10 years at 8+%.
      It is another good option to be considered for diversification.

  11. Amlan / Stock Guru

    The basic fallacy in your calculation of compounded returns from FDs is that you’re deducting tax after compounding @ 9.25/9. 5% for 10 years, and while tax has to be paid every year on accrued interest. Hence we should be ideally be compounding at a tax free rate of approximately 6.3-6.5%.

    Also if we take into consideration the returns generated by investing yearly interest of NHAI bonds, I’m sure the bonds will be quite an attractive proposition.

    Would like to hear from everyone about this.

  12. A confirmation please –
    Does the investments in NHAI bond allow for relief under 80CCF ( to the limit of Rs20000 like IDFC and IFCI ?)

  13. These bonds are tax free in nature there is no doubt.But the return variation from already available instruments like high rate FDs is very minimal.For NRIs it can be a good option but banks are already increasing deposits rate for them after deregulation.HDFC & SBI has done that and more banks will follow.

    In all probability the investment will be wiser if one can earn a good differential returns as comparison to products available. If FD even after post tax fetches returns almost equal to this bond it becomes a more viable option due to its liquidity.Hence, invest or not to invest should be based on two factors- Return differential & Liquidity. Credit risk will always be one of the criteria while investing in any bonds.

    1. Fully agree with the above comments from Mr. Jitendra.
      I went to ICICI Bank collection centre today and obsevered people are investing in this bond in lacs and crores. 🙂
      It seems it will be over-subscribed in the first day itself.

  14. There are certain benefits of investing in NHAI tax free bonds:

    1. It is generating slightly higher returns then a 10 year FD e.g SBI. But yearly compounding will increase the gap.

    2. The bonds might trade at premium due to the falling interest rate scenario in future which can generate good profits

    3. The flexibility to invest the interest amount anywhere is there which is not present in other instruments like FD

    Due to above reasons it becomes a good option for investing especially people in highest tax bracket.

  15. Will the NHAI bond be compounded annually or it is plain 8.3%. What will be the return after 15 years for Rs.1,00,000. I tried several online calculators and each of them gives me a different number? Could you please help out???

    I know this could be oversubscribed, by the time I make a decision. But I wanted to know where to look for this information in the prospectus or What is the general rule for these kind of bonds, because as a matter of fact we know FD compounds annually or quarterly etc.,

    1. Hi Mr. Prem.. there is no compounding option available in these bonds. The interest of 8.30% p.a. is payable annually on October 1 each year. After 15 years, you’ll get back Rs. 1 lakh along with the interest for a period between October 1, 2026 and say January 20, 2027 (assuming January 20, 2012 as the deemed date of allotment).

          1. Hey , I find the discussion knowledgable, just wanted to ask what will be return on maturity if one invests Rs 1Lakh? Will it be Rs 1,82,000 ? for 10 years?

  16. Hi Manshu.. The issue has already got subscribed two times, on the first day itself.

    http://business-standard.com/india/news/nhai-tax-free-bond-issue-subscribed-two-times/460108/

    Category I investors, Financial Institutions, Mutual Funds, Insurance Cos., FIIs, Trusts, Corporates are too hungry for an issue like this. Category I subscription figure is 3 times, Rs. 12,000 crore as against Rs. 4,000 crore reserved. Category II investors (HNIs, NRIs etc.) have made subscriptions of Rs. 6,000 crore vs. Rs. 3,000 crore. Retails category is still undersubscribed with Rs. 1,000 crore as against Rs. 3,000 crore reserved for them.

    My earlier observation “I’m 100% sure that the Institutional Category & HNIs Categoty will get over-subscribed on the 1st day itself and probably the Retail Categoty as well” was not well off the mark. Probably Retail Investors were too busy with work yesterday, next two days will see some action in this category and the issue will get closed on friday. Thankfully, for retail investors, the allotment will be on a proportionate basis.

    Huge appetite for issues like these !! PFC Tax-Free Bonds issue is opening tomorrow & it will be interesting to see how it goes.

  17. Hi:

    Good job Shiv and others who are sincere in answering people’s question. It is very vital. I have 3 questions that I wanted the gurus to advice, 1.) Is the interest payable on yearly basis or compounded to the principal? 2.) Also does this give relief under any 80 C/D categories? The reason I am asking is, If I fall under the 30% + tax bracket and I am already covered on EMI + Interest paid towards housing loans under 80 C Categories, Do I have to still opt for taking this? if not, I would like to put it in floater FD which gives couple of % less, but gives me an option to withdraw money during need. Finally, 3.) If I have to opt between investing in this verusus paying back part of a house loan for which the interest is around 10.75%, Which one would be the best decision?

    Thanks

    Srikanth

    1. Thank You Mr. Srikanth for this encouragement !! This really works wonders for us.

      Answers to your queries:

      1) Interest of 8.30% or 8.20% is payable annually, there is no compounding option at all.

      2) It does NOT give any tax deduction under any section of I-T Act, be it 80C or 80CCF or 80D or 54 EC. The interest you will receive annually is absolutely Tax-Free and you are not liable to add it to your taxable income while filing your tax return. This will come under exempt income.

      If you have a Demat account and take these bonds in the Demat form, you will get the desired liquidity as these bonds are going to list on NSE/BSE upon listing (Listing should happen by the last week of January). During the entire tenure of 15 years or 10 years, the trading will remain open and you can liquidate your investment at any point of time.

      I would advise these bonds for all those investor who fall in the 30.9% or 20.6% Tax Bracket and pay their taxes honestly. In the 30.9% tax bracket, the effective yield is 12.01% and in the 20.6% tax bracket, the effective yield is 10.45%. You can compare the FD returns with these returns. Easy liquidity without any penalty is a big bonus.

      3) If your tax-benefit adjusted cost of home loan is more than 8.3% and on an average you expect it to remain like this, for a considerable period of next 10 to 15 years, then you should pay back your home loan first. Please consider pre-payment penalty part also (if it is still there even after RBI notifications).

      Manshu, please share your thoughts.

      1. Beautiful(Didnt like the ‘Mr.’ Part though…) . Thanks. One last question. IF I take this thru Demat in ICICI, should I stay with them for 10 years or I can still opt online and then transferto any online brokerage firm? It would be very difficult for me to stay with ICICI for next 10 years….

        Srikanth

  18. 🙂 addressing you as ‘Mr.’ is a pre-requisite of a Civilsed World and I respect & follow that. When I know you well and become friendly with you like I’ve become with Manshu, I’ll start addressing you with your name.

    Moving ahead, you can transfer these bonds or for that matter any of your securities held in ICICI Demat account to any online/offline brokerage firm of your choice. You can freely do so. It is like moving your money from one Bank Savings account to another, in case you decide to close the first Savings A/C. or get another Demat A/C. opened & keep both active.

  19. Hi Experts,

    I’m asking this question with less knowledge in FDs and bonds. Few banks (Central Bank of India, Union Bank of India etc.,) offering FD to double money in 7.5 yrs giving annualised yeild of 13.33%. If we consider these FD’s, which one would be most beneficial compared to NHAI tax free bonds?

    1. Its very difficult to compare FDs and NHAI bonds as both of these have features which may benefit to some investors while may not matter to most. NHAI bonds are listed on exchange and so one has opportunity of earning capital gains.There is no such benefit on FDs.On other hand FDs have a high liquidity feature physically which is not the case with NHAI bonds.Similarly NHAI bonds carry reinvestment risk which is captured by an FD.

      Hence if your objective is investment for capital gains then you can consider NHAI bonds otherwise FD might be more advisable option.Avoid catchy words like Double your money.Instead calculate net returns by taking tax into consideration and then make a decision.

  20. Please clarify whether the investment made in this NHAI bond can be claimed under 80CCF (in the Rs.20000/- additional exemption limit)

  21. Dear Mr. SHIV,
    IS THERE ANY LOCK IN PERIOD? I suppose no lock in period as these are going to be quoted & traded on NSE & BSE. Please Clarfy.
    Mahesh.

  22. Anupma I think you have fair chance of getting allotment as over subscription is mostly from institutions or People with lots of money. The retail part is not even fully subscribed. If you want to invest then hurry up!

    Quoting from TOI NHAI awaits retail bids to close bond issue
    The National Highways Authority of India’s tax free bonds have seen bids for almost Rs 22,500 crore from high net worth individuals (HNIs) and institutional investors, raising expectations of the issue closing well before January 11, the scheduled date of close. But the issue managers and the issuer have a small problem at hand. So far, the Rs 5,000 crore bond issue has generated bids for only Rs 622 crore from retail investors against the quota of Rs 1,000 crore.
    While banking sources are confident of getting individuals too on board, they are not sure by when. “Typically, retail investors wait till the last day to put in their bids, and the experience will be similar for NHAI bonds too,” said a source.

    Already, the buzz in the market is that fresh bids from HNIs and institutional investors are not being entertained and the NHAI issue could close by Monday. “As soon as NHAI achieves the retail quota, the issue will be closed,” said a government official.

  23. Dear Shiv & Manshu,

    For people like me who fall under 10% tax slab, what is the effective yield for these tax-free bonds ? Is it better for me to invest in these tax-free bonds versus SBI FD giving 9.25% for 10 years ?

    Considering the response from Institutions / HNIs do you expect these bonds to list at a premium ? Can I invest in these bonds only for listing gains ?

    Please reply as soon as possible

    Thanks

  24. Why people are rushing in for these bonds.

    1. There is volatility in the equity markets
    2. Rate cut expectation in next 3-6 months with the interest rate at its peak,(tentatively)
    3. AAA rated, tax free government backed paper giving a return of 8+% (though some have said pre-tax return of 11.7% for those taxed in the 30% bracket )

    In the present scenario is seems a good option worth considering. And it also helps to do asset diversification.

    Newspapers, Financial magazines, mail boxes, mobiles are bombarded with these offers. Infact a friend of mine who was out of station for last two days thought he cannot apply as bonds have been over subscribed. (Retail portion of the bond was not fully subscribed till yesterday )

    Assuming one has a financial plan -Before one invests one needs to check if this option fits into the financial plan and then consider the option and see if it fits in.
    But if one doesn’t have a financial plan then..I shall anecdote from “Alice in Wonderland” book

    One day Alice came to a fork in the road and saw a Cheshire cat in a tree.
    “Which road do I take? she asked.
    Where do you want to go? was his response. I don’t know, Alice answered.
    Then, said the cat, it doesn’t matter.”

  25. Hi TCB… In the 10.3% Tax Bracket, the effective yield is 9.253% (8.30% – 15Year option), so, yield-wise, there is not much difference. But you cannot trade in FDs and hence there is no scope of Capital Gains. In NHAI Bonds, apart from interest income, there is a scope of Capital Gains also.

    Observing the Category I & Category II response, I expect the Bonds to list at a premium of at least 2-4%. Surely you can invest in these bonds for listing gains but I think the longer an investor will remain invested in these bonds, the higher will be capital appreciation.

    1. Dear Shiv,

      Thanks for the reply. Is the NHAI issue still open ? Can I invest on Monday ?

      If yes, which of the two NHAI or PFC should I apply to get more allotment ?

      Can I get higher listing price of NHAI as it is listing on NSE also and as its issue size is more than PFC ?

      Thanks

      1. Hi TCB.. NHAI issue is still open. As per some unofficial sources, Category III subscription figure has crossed some 1500 Crore against Rs. 3000 Crore reserved. So, I think the issue would remain open at least till Monday.

        NHAI’s issue size of Rs. 10000 Crore and its listing on both NSE & BSE would have some positive effect on the volumes traded and probably on the listing price also. I would personally go for the NHAI issue.

        1. Dear Shiv,

          Thanks a lot for your reply.

          In one of your earlier posts, you had mentioned that PFC and HUDCO had launched tax-free bonds earlier. Were these bonds listed ? From where can I get the prices ?

          I am asking this, as I wanted to know the yields at which the old bonds are quoting. This will give me a fairly accurate idea of listing price of present bonds.

          If the old PFC and HUDCO bonds are not listed, please tell me which is the nearest comparable debt instrument that is listed and at what yield is it traded.

          The above infomation is necessary for me to take decision about investing in the present bond issue. Hope you will give the details as sooon as possible.

          Thanks

          1. Hi Mr. TCB… I’ve not been able to check their listing as I got extremely busy in the last 30-40 days due to various reasons. I would personally compare these bonds with SBI 9.95% taxable Bonds issue which came in February 2011 & is trading around Rs. 11100 against the issue price of Rs. 10000, yielding around 9.5%.

            Though not strictly comparable, the issue size in both the cases is Rs. 10000 Crore each and both are quite reputed Govt. institutions. At 9.5%, the effective after-tax yield works out to somewhere around 6.5% to 6.65%. As compared to 6.5% or 6.65%, NHAI Bond yield of 8.3% is quite attractive to me. I think that is the reason why Institutional Investors are lapping it up.

            1. Dear Shiv,

              If the post-tax yield of SBI bonds is 6.65%, then NHAI bonds should list at more than Rs. 1200 to be at par with SBI Bonds in terms of yield. This is more than 20% premium to its issue price. Is this correct or am I making some mistake ?

              If the above is correct, why do you expect the listing to be only 2-3% higher and not more ?

              Thankful to you as always

              1. Hi TCB… Both these bonds are not strictly comparable. If NHAI Bonds lists at 20% premium then you’ll find only sellers in the market with no buyers. I said at least 2-3% and probably I’m a bit conservative. But to be on safer side, I still want to quote the same “at least 2-3% premium”. Whatever more premium the investors get, it will be a bonus.

              1. Hi TCB… SBI issue closed on February 28th and the listing happened on March 21st. I think NHAI Bonds should list by the last week of January.

        2. Dear Shiv,

          In addition to the above querry, I would be grateful if you can clarify the following :

          I have read somewhere that the ceiling for coupan for tax-free bonds is previous month’s G-sec yield minus 50 basis points. i.e. a company issuing tax-free bonds cannot offer coupan higher than previous month’s 10 year G-sec yield minus 50 basis points.

          If this is so, 10 year G-sec yield is likely to be higher than yields offered on tax-free bonds. My questions are :

          1) Can retail investors buy G-secs ? If yes, are there any negatives about G-secs compared to tax-free bonds like NHAI ?

          2) Can institutions, QIBs, HNIs etc. (i.e. non-retail investors) buy G-secs ? If yes, why are they investing in present issue of NHAI bonds at lower yield ?

          Myself and many other readers will benefit if you can clarify the above.

          Thanks a lot

          1. Hi.. If I’m not wrong, Yes, the Retail Investors can invest in G-Secs and the minimum investment required is Rs. 5 Crore. I don’t know how many retail investors have Rs. 5 Crore to invest in G-Secs. They can also invest in G-Secs through Mutual Fund Gilt Schemes.

            The interest earned by these MFs on G-Secs is taxable, so the effective yield is lower than the quoted Coupon Rate. If you compare after-tax return what MFs earn on G-Secs with these NHAI Tax-Free Bonds, then yields are way higher in NHAI Bonds. That is the reason why Institutional Investors including MFs, Insurance Cos., Trusts, Corporates, FIIs etc. and also NRI/HNIs lapped these bonds up on the first day itself.

            The only difference is that G-Secs are issued by the RBI on behalf of the Govt. for the latter’s various kind of expenditures, so, in a way, issued by the Govt. itself. Whereas, the NHAI Bonds are issued by NHAI for its own planned expenditures. That is why the effective after-tax yield is higher in case of NHAI at 8.3%.

            I hope it would clarify your doubts.

            1. Dear Shiv,

              I am not able to find words to express my gratitude to you. Your level of knowledge and selfless desire to help others are extremely rare these days.

              Earlier I was under the impression that interest from G-secs is tax-free for all investors. So I was directly comparing yields of G-secs to yields of NHAI bonds. But from your reply I understood that QIBs, FIIs, MFs, Insurance companies, Trusts, Corporates, HNIs etc. have to pay tax on the interest which they receive from G-secs. So their post-tax yield of G-secs is lower than yield of NHAI bonds. Is my understanding correct ?

              Thanks a lot

              1. Hi TCB.. .Thanks a lot for these kind words!!

                Yes, you understood it rightly, interest earned on G-Secs is taxable, that is why Financial Institutions are running after this Tax-Free Bond issue as the effective yield is higher.

                1. Hi ,
                  I am clear that the returns on these bonds are tax-free.
                  But does these NHAI bonds come under infrastructure bonds , if not then do they have tax benefit on my income , i mean can i save income tax like i can save through infrastructure bonds upto 20,000.
                  If yes , then these are under what section , are they under 1 lack limit of savings (where we have NSc) or is it some other benefit .
                  please can someone make the tax benefit part on income tax more clear(apart from returns from this bond)

  26. I am planning to invest in these bonds. Since it is a substantial amount, I checked with one of the distributors about him passing on some of his commission back to me, but he declined stating that it is very nominal for bonds. Is that the case or is he pulling a fast one on me?

    1. Agent passing a part of commission is a thing of past and I think punishable also.
      Sharing the info I found on NHAI Tax Free Bond – Tax benefit and effects under the Income Tax Act, Wealth Tax Act and Direct Tax Code. Please verify, I am just quoting it.
      Commission on sale.
      i) in case of a public issue, the commission on sale shall be capped at a maximum of a flat fee of 1.25% of the issue size;
      ii) in case of a private placement- (a) for bonds with a tenure of ten years, the commission on sale shall be capped at a maximum of a flat fee of 0.1% of the issue size; (b) for bonds with a tenure of fifteen years, the commission on sale shall be capped at a maximum of a flat fee of 0.2% of the issue size.

      1. Why should it be illegal? It’s an incentive that the broker is passing on to get me to invest through him. As I see it, if I invest 5L, he gets 6250 (1.25%) for little more than just submitting the application form. If he passes on some of it to me, it’s a win-win for both of us.

        1. Jagan,
          Quoting from EconomicTimes article Sebi bans incentive payment in debt issues.
          The Securities and Exchange Board of India (Sebi) on Monday banned payment of incentives to investors to bid in public sale of bonds as it considers the practice leads to an ‘unfair advantage’ to a select few and raises the cost to issuer.

          Public bond sales are rising with many companies such as Rural Electrification Corp, National Highway Authority of India and others planning to raise thousands of crores from retail investors. To get a higher share, some brokers are offering incentives for investors to buy these bonds through them, which Sebi feels is not right.

  27. Hi Mr. Shiv,

    As you mentioned, In NHAI Bonds, apart from interest income, there is a scope of Capital Gains also. My question is, will there be any possibility to get Capital Loss?

    1. No, I think a capital loss is impossible. My understanding of the reason behind capital gain is this: you get 82 Rs/1000, which is the committed rate of interest. Now, if the interest rates were to go down to 5%, you’ll have a lot of interest in getting this bond, as its offering an interest lot more than the interest rate. So, the price would rise to around 1600, which gives an interest of 82. That accounts for your capital gain.

      Conversely, if the interest rates rise to 20%, then you are losing out. As per the market scenario, you wouldn’t have any takers for the bond above 400. So, theoretically, you’ve made a loss. But, remember, NHAI is bound to pay you the full 1000 rupees, so unless you have a necessity to sell, you’ll always be able to get your principal back.

    2. Hi Sat.. Everything is possible on this earth, so in the Bond Markets. If I understood your query rightly, you are talking about Capital Loss happening on the listing day. Yes it is possible but I think with a very very low probability. If Category I & Category II investors are investing multiple times in this issue at Rs. 1000 Face Value, then I think they would go crazy for these bonds if they start trading at a discount. As I just mentioned above about SBI 9.95% Taxable Bonds and NHAI 8.3% Tax-Free Bonds – “At 9.5%, the effective after-tax yield works out to somewhere around 6.5% to 6.65%. As compared to 6.5% or 6.65%, NHAI Bond yield of 8.3% is quite attractive to me. I think that is the reason why Institutional Investors are lapping it up”.

      Please let me know in case you’ve any further query.

  28. Hi Manshu,

    Thanks for this post. Very useful to lot of folks always. I wish you a happy new year as well.
    Have a query though. Is it a better idea to partly pay-off housing loan with 9% interest rate as compared to investing in NHAI bonds?

    Regards,
    Sandriano

    1. Happy new year to you too Sandriano!

      In my mind that will largely depend on how far away you are in your EMIs. If you are at a stage where the interest payments still make bulk of the EMI then it will probably be better to pay off the loan, if not then probably better to invest in this.

      I think it will depend on all the terms of the loan and if you leave a comment with that I could try and take a look at all the detals.

  29. Hi Manshu,

    Thanks always for your inputs; always helpful in making informed decisions.
    I think I got my answer. Nevertheless, here are the details. Bulk of the EMI goes towards interest.
    Loan Amount: 28 Lakhs (LIC Hsg Fin)
    Tenure: 20 yrs
    Commencement: Dec 09
    Interest: Locked for 8.9% for 3 yrs (until Nov 12) and market rate thereupon
    Current Interest: 8.9%
    EMIs paid till date (in months): 24

    Regards,
    Sandriano

    1. Thanks Sandriano – let me try to do a post with these numbers in detail – I have never done such a comparison so it will be a first time for me and sharing it here with a wider audience might get some good perspective from some people who have done similar comparisons.

      1. Hi Manshu,

        Thanks for the reply.
        It would be helpful if the post is on what are better investing options compared to repaying the housing loan. In addition to the above scenario, one other option that I was pondering was whether it is a wise idea to repay the housing loan (with above mentioned details) or to invest the same repayment amount in PPF which has an interest rate of 8.6% pa. I think such a post will be very useful. I recently observed that a lot of my friends are investing upto 70,000 pa in PPF when, at the same time, they are servicing a housing loan at over 10% pa. It did not look like a sound financial decision. Here I am assuming that they are in early stages of housing loan repayment which in all probability is true.

        Regards,
        Sandriano

  30. Hi,
    Would there be any difference in the way the interest & maturity amount is paid back; depending on whether the NHAI bonds are held in Demat form or physical form?
    More specifically – Does the interest & maturity proceeds would be done ‘automatically’ to the linked savings account without any manual intervention if the bond is held in Demat form (say ICICI Bank savings account linked to ICICI Direct account in which bond are held in demat form); but if the bond are held in physical form then physical cheques for each year would be mailed at beginning of each year & the physical bond needs to be mailed to NHAI at the end of subscription period to get the maturity amount cheque . Is this correct?

    1. From what I read in the application form – it appears that they are going to try to make payment electronically first and only if they are unable to do that because the bank MICR or IFSC code is incorrect or something then that will make them send you the check.

      1. So it does not matter if the bond is held in physical for or Demat – the interest & maturiy payout would be done in same manner? And what at the time of maturity? Do we have to send the bond to NHAI with instructions one month before maturity in case the bond is held in physical form?
        [Thanks for all your informed inputs and discussions] Regards.

        1. Yes because if you have them in Demat then you don’t have to worry about anything at all and you have the opportunity to sell them on the exchange as well. If you have the Demat already then that’s a lot better in my opinion.

  31. Hi ,
    I am clear that the returns on these bonds are tax-free.
    But does these NHAI bonds come under infrastructure bonds , if not then do they have tax benefit on my income , i mean can i save income tax like i can save through infrastructure bonds upto 20,000.
    If yes , then these are under what section , are they under 1 lack limit of savings (where we have NSc, ppf n all) or is it some other benefit .
    please can someone make the tax benefit part on income tax more clear(apart from returns from this bond)

    1. No these do not fall under long term infrastructure bonds (Section 80CCF). Those are tax SAVING bonds and this one is tax FREE bond. So that means Interest from Bond does not form part of Total Income.

    2. My two cents on tax related issues for these bonds.. Quoting the various income tax related stuff regarding these tax free bonds as per taxguru.in: NHAI Tax Free Bond – Tax benefit and effects under the Income Tax Act, Wealth Tax Act and Direct Tax Code

      Interest from Bond do not form part of Total Income so it tax free. Since the interest Income on these bonds is exempt, no Tax Deduction at Source is required.

      Under section 2 (29A) of the I.T. Act, read with section 2 (42A) of the I.T. Act, a listed Bond is treated as a long term capital asset if the same is held for more than 12 months immediately preceding the date of its transfer.

      Short-term capital gains on the transfer of listed bonds, where bonds are held for a period of not more than 12 months would be taxed at the normal rates of tax in accordance with and subject to the provision of the I.T. Act.

      Long term capital gain tax can be considered 10% on listed bonds without indexation. Securities Transaction Tax (“STT”) is a tax being levied on all transactions in specified securities done on the stock exchanges at rates prescribed by the Central Government from time to time. STT is not applicable on transactions in the Bonds.

      Note:20% of long term capital gains calculated after reducing indexed cost of acquisition is not available for these bonds.

      Wealth-tax is not levied on investment in bond under section 2(ea) of the Wealth-tax Act, 1957.

      If there are some discrepancy or misinterpretion please correct.

  32. Hi… The issue pre-closes on Wednesday, January 5th. Remarkable participation by all the investor categories!!

    1. Dear Shiv,

      Thanks to you I invested to my fullest capacity in this issue. Do you have any information about how many times this issue got over-subscribed in retail segment ?

      Thank you very much

  33. All,
    I would like to add that as these bonds will be listed in nse /bse we will also see ay appreciation in the value of the bonds assuming that interest rates will also come down from curnet levels in near future.
    so Nhai bonds are also good to invest your money,both for interest and capital appreciation.

  34. The GMP has shot up to Rs 12/- in Gujarat.

    This coupled with 1 % incentive,interest & capital gain of at least 25-30 rs on listing means a solid gain of 15-20000/rs on listing.Views invited

    1. Dear Saharanpuri,

      From where can I get information about GMP ? Is there any website giving this information ?

      Do you know how many times NHAI bond issue was over-subscribed in retail ?

      Thanks

  35. the allotment is firm for retaill allottees with only 1500 crore coming n rest going to HNI category
    GMP is grapewine from diff sources.

  36. Hi,
    Do you know when the NHAI Tax Free Bonds allotment will begin?
    Has it already started? When do you expect any communication?

  37. Dear Shiv,

    Any information about allotment date and listing date ? Is it advisable to sell these bonds and invest the proceeds in Railway bond issue for LISTING GAIN ?

    Thanks

    1. Hi TCB

      No info yet on the allotment date & listing date of NHAI bonds. I think listing should happen somewhere around February 1st and allotment at least a couple of days prior to that.

      Personally, I would stay invested in NHAI bonds as they offer better rate of interest and liquidity than IRFC and also listing gains would be capped in IRFC as compared to NHAI as the investors will get a lower rate of interest in case they buy it from the secondary markets.

  38. As per DNA Money Life NHAI bonds to be listed next week Quoting from it:
    On the allotment of the bonds to the various categories of investors, the official said, “Investors who have applied for `5 lakh and less in the retail category will get full allotment, while the high net worth individuals (HNI) category will get 62% of the applied amount. In the ‘others’ category, the subscribers will be allotted 35-40% of the total application.”

    The break-up of the Rs10,000 crore corpus was `3,000 each in the retail and HNI, and the remaining `4,000 crore for qualified institutional buyers.

    The authority had got 60% subscription in retail while the HNI and other category was oversubscribed by two times and four times, respectively. “It is the 40% of the retail category that was transferred to the HNI bracket, which resulted in expanding the basket,” the official added.

    Cash refunds to the subscribers who have not been allotted the bonds, will start on Friday. A total of`15,200 crore has to be refunded by the authority. Owing to its high tax-free interest rates, the authority got applications worth `25,200 crore for the bonds.

  39. our housing society is in need of artificialarrow houses nests feeders.which bird lover society can donate? phone no 99692o6046

  40. APPLICATION NO 12057949,12057950,12057951
    till date not received physical deliveery of bonds certificate
    when it is expected?
    please inform me?

  41. I have invested in NHAI bonds under 10 yr tenure. they had said that there is no lock in period and can be redeemed when listed in NSE/BSE ETC. What should i do now to encash the same now. pls guide me

    1. Hi

      If you’ve taken NHAI Bonds in your Demat A/c., then just simply sell them on NSE/BSE like you sell your equity shares either through your stock broker or online. 10 year bonds’ closing price today on NSE was Rs. 1034.

      Or else, if you’ve these bonds in physical certificate form, then you first need to get them dematerialised & after that do the above mentioned.

    1. Hi jiger… You should invest your money in a company whose management is good, financials are better than the industry average and business model has a bright future. Keeping in mind these things, you can invest in NCDs of good companies like SBI, NHAI, Shriram Transport Finance etc. From safety point of view, you can invest in NCDs of govt. cos. like SBI, IFCI, NHAI, IRFC, PFC, REC, HUDCO etc.

      You can check the review of India Infoline Finance Limited NCD from this link:

      http://www.onemint.com/2012/08/30/india-infoline-finance-limited-ncd-review/comment-page-1/#comment-252770

  42. Why has the price of NHAI tax free bonds fallen Rs. 53/- in a single day today? Was yesterday the last day for deciding whom should the dividend be given?
    I was expecting it to fall around Rs. 55/- on October 1 when it gives out its annual dividend.

    1. Hi Deepak… NHAI tax-free bonds have gone “ex-interest” today. Record date is September 15th and Interest Payment Date is October 1st. Even if somebody sells these bonds today, he is going to get interest on October 1st. But if you buy them today, you will not get any interest.

      1. Thanks for the clarification, Shiv.
        I had purchased these bonds on Monday but they are still not transferred to my account. They were in my Depository’s pool and are expected to be transferred to my account before tomorrow. I hope I will automatically get the interest on October 1. Can you please confirm?
        If not, whom can I contact for the same?

        1. Yes, you’ll get the interest, if the bonds are in your name in the records of the Registrar on the “Record Date” i.e. September 15th. Bonds purchased till yesterday will get the interest payments.

    1. Yes. I have RBI bond proceeds and LIC proceeds to invest, I guess I need to wait till Oct 1 when the price should fall post the interest payout.

  43. Annual interest on NHAI tax free bonds were expected on October 1st. But I have not received the same. Can anybody explain it? Or will it be available on next year October, i.e. 1st Oct, 2013?

  44. Though interest was supposed to be paid on 1st October, 2012, I am yet to receive the same on my NHAI tax free bonds. Why so ? What’s the remedy?

    pkpsbi

  45. I am supposed to receive interest on my investment in tax free bonds of NHAI in October’ 2012. But I have not received the same. What shall I do? Whom shall I contact?

    1. I am Having N H A I Tax free bonds in physical form and i want to gift it to my freind . Is gift tax is applicable or not.

      1. Gift Tax on Bonds/Debentures/NCDs: As per section 56(2)(vii) of the I.T. Act, in case where individual or HUF receives bond from any person on or after 1st October, 2009, it shall be taxable as the income of the recipient, if it is

        A. without any consideration and the aggregate fair market value of which exceeds Rs. 50,000, then the whole of the aggregate fair market value of such bonds/debentures would be taxable.

        B. for a consideration (say Rs. 4 lakhs), which is less than the aggregate fair market value of the Bond (say Rs. 5 lakhs), by an amount exceeding Rs. 50,000, then the aggregate fair market value of such bonds/debentures as exceeds such consideration (Rs. 5 lakhs – Rs. 4 lakhs = Rs. 1 lakh in this example), would be taxable.

        Provided further that this clause shall not apply to any sum of money or any property
        received—
        a) from any relative; or
        b) on the occasion of the marriage of the individual; or
        c) under a will or by way of inheritance; or
        d) in contemplation of death of the payer or donor, as the case may be; or
        e) from any local authority as defined in the Explanation to clause (20) of
        section 10; or
        f) from any fund or foundation or university or other educational institution or
        hospital or other medical institution or any trust or institution referred to in
        clause (23C) of section 10; or
        g) from any trust or institution registered under section 12AA.

  46. I have applied for 500 capital gain tax exemption bonds of National Highway Authority vide application no.200795 DT.29/8/2015. When I get bond certificates physically.

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