Indian Railways announced the details of their tax free bond issue, and Shiv emailed me the term sheet today.
There is one new and interesting thing about this offer which I’ll come to in a while but before that let’s take a look at the other regular details of these bonds.
There will be two series – one with a 10 year maturity, and the second one with the 15 year maturity, and the interest on both options will be paid annually.
The issue is going to open on January 27th 2012 and is planned to close on the February 10 2012. You have to invest a minimum of Rs. 10,000 and since one bond has a face value of Rs. 1,000, you can invest in Rs. 5,000 multiples after that.
The issue size is Rs. 6,300 crores and the issue has been rated CRISIL AAA and CARE AAA by CRISIL and CARE respectively; this of course is their highest rating. ICRA has rated it AAA as well.
30% of the issue is reserved for the retail investors and this is important because retail investors will get a higher interest rate than other class of investors. An individual investing less than Rs. 5 lakhs will fall under the retail category.
The bonds will also list on the NSE and BSE.
Here are the details of the issue in a snapshot.
| Option | Series I | Series II |
|---|---|---|
| Face Value | Rs. 1,000 | Rs. 1,000 |
| Minimum Investment | Rs. 10,000 | Rs. 10,000 |
| Tenor | 10 years | 15 years |
| Interest Rate: Retail Investors | 8.15% | 8.30% |
| Interest Rate: Other Investors | 8.00% | 8.10% |
| Interest Payment | Annual | Annual |
As you can see the interest rate that retail investors get is a tad higher than the other categories and they have put in a condition to say that only the first allottee will get the higher rate. So, if you want the higher interest you must subscribe to the issue. If you buy it from the stock exchange then you will not get the retail investor interest rate even if you are a retail investor. You will get the lower interest rate.
This is a clever way of first of all giving an incentive to retail investors to subscribe to the issue and then reduce the overall interest burden because some people will end up selling the bonds in the market and then Indian Rail will not have to pay the higher interest rate for them.
I think this should speed up the subscription of the retail part which was lagging so far in the other issues, and I think this will catch the interest of NRIs as well who can invest in these bonds under either category.
The tax free offers that are coming out right now are fairly good deals and if you are looking for fixed income products then you can consider this issue.
Update: Corrected the face value from Rs. 5,000 to Rs. 1,000 and added ICRA’s credit rating per Shiv’s comment below.Â
hi,
got allotement message from cdsl for nhai tax frree bonds
Hi Mr. Ravi… Some reliable sources have informed me the bonds should start pouring into the Demat A/cs. as early as today evening itself i.e. January 27th evening. So keep checking your Demat accounts and the next SMS could be from your DP informing that “500 NHAI Bonds have been credited into your Demat A/c. XXXXXXXX”… 🙂
Shiv, you are very very right.
The allotment of NHAI TFB happened yesterday and I got the SMS today morning. 🙂
Oh that is great !!… My reliable sources are actually reliable… 😉
Now, I think these bonds should list & start trading around February 1st. Gear up for some listing gains !! 🙂
I got the SMS on Saturday, January 28 at 2pm that the bonds have been credited to my demat account but when I check my demat account (HDFC Securities) the bonds do not appear in my portfolio. Am I missing something? (this is the first time I have applied for an IPO).
Hi Siddharth… These are securities which dont immediately start reflecting on the securities/holdings page of your trading a/c. But, either they start showing on a day when the exchanges are also working or when the trading starts in these securities. As today both the exchanges were shut and also no trading was taking place so I think you need to wait for some more time.
Also, I dont understand why everybody is becoming so impatient to see NHAI Bonds in his/her Demat A/c. Haven’t we made this investment for 15 years/10 years ?? 😉
Excited (and hence impatient) because this is my first foray into an IPO issue 🙂 By the way, I applied for 600 bonds, was issued 370 bonds per the SMS received.
This is because you applied in Category II investors, which got oversubscribed 2.40476 times (without spillover from the retail category) and 1.62010 times (with spillover from the retail category). So, you got 600/1.62010 = 370 no. of bonds.
I also got my allotment messages at around 2 P.M. We’ve got full allotment in all of the 3 A/cs.
Dear Shiv,
Are you going to sell on listing or keep for long term ? Any info about the listing date ? Thanks
Hi TCB… I applied for SBI 9.95% Bonds in February 2011, got the allotment on March 16th, it closed with 3% gain on the listing day & today it is trading between Rs. 11,250-11,350, implying approximately 10% gain since listing day & a total gain of approximately 13-13.5%. This has happened despite interest rates going upwards. I’m expecting around 15-18% returns in a year or so with NHAI Bonds.. 🙂
No info about the listing date. I’m expecting it to happen on February 1st.
dear shiv,
can u tell me the allotement date of nhai tax free bonds,THANKS.
Hi Manshu
One more thing, I just did a deep search for the listing status of PFC 8.16% and 8.09% Tax-Free Bonds. These Bonds are listed on the Wholesale Debt Market of NSE with ISIN – INE134E07141 and INE134E07133 respectively. Till date there is not even a single trade has happened in these bonds. Very Interesting!!
It is very difficult to share the sources of my search, otherwise I would have done that.
Dear Shiv,
Can you please give some information about the Wholesale Debt Market like – which category of securities are listed there ? what is the eligibility criteria for executing trades there ? etc.
On which market – Wholesale or other – NHAI bonds will list ?
Wow! So how can one trade on them? Not through the regular ICICI Direct or Edelweiss portal? What happened to all the guys who were trying to flip and get listing gains. Very strange!
Hi Manshu… Yaar it is not about any online portal like ICICI Direct or Edelweiss, not even a single trade has happened, either offline or online. These bonds are not listed on the normal segment of NSE or BSE, so online portals like ICICI, Edelweiss, HDFC, Kotak etc. dont even enter into the picture. Actually, not many people were aware of these bonds when these 8.16%/8.09% PFC or HUDCO issues came. So, the subscription figures were quite low.
Apart from Institutional Investors, which invest for the long term, probably only a few individuals or HNIs invested in them and whosoever invested for the listing gains is completely stuck now. Actually it is a very painful situation if you need your money back urgently and you are not able to sell these bonds anywhere. Actually that is one of the reasons why SEBI wants to develop a market for these kind of Corporate Bonds.
Dear Shiv,
I think the issue of PFC may be only for non-retail investors. This may be the reason for listing in Wholesale Debt segment.
No, it was for the Retail Investors as well. I myself serviced a couple of my clients, both for the HUDCO issue as the PFC issue got closed when they showed their interest. Minimum investment was Rs. 1 lakh.
Hi Manshu
One very interesting thing I want to discuss here. PFC came out with its 2nd Tax-Free issue in November, carrying a rate of interest of 8.16% (15 years) and 8.09% (10 years) and found very few takers for these rates. You did a post on that also. Nobody in the general public knew about it. Brokers were just not focussing on it. Now, when IRFC has come out with a lower rate of interest of 8.10% (15 years) and 8% (10 years), except for Retail Investors below 5 lakhs, we are expecting the Category I and Category II portion to get oversubscribed on the 1st day itself despite of the fact that it is a Rs. 6,300 Crore big issue.
I was wondering how our psychology changes so fast that what we did not even want to see a few days back, today we are ready to marry an inferior option because marketers have made that investment option look attractive. I think it is all in your Head which matters.
Dear Shiv,
From where can I get information about subscription of IRFC Bonds ? If any website is publishing this info. pl. name it.
Thanks
Hi TCB… There is no reliable source or official website for getting this information accurately. Whatever subscription figures come during the offer periods those are either rumours or leaked inaccurate figures. But yes with the combination of these rumours and leaked infos, you can have some guessestimates, which I keep sharing here with OneMint readers.
Dear Shiv,
Thanks for the reply. Please keep on sharing with us the subscription figures as and when you get these. Any info about the first day’s subscription in different categories ?
Thanks
Hi TCB… My associates and other sources are yet to wake up on Saturday morning.. :-).. just joking !!.. The only source that I’ve till yet is the Business Standard article:
http://business-standard.com/india/news/irfchudco-collect-over-rs-10k-crday-one/463056/
I think Category I is done for the IRFC issue, Category II & Category III remains for the subscription.
Dear Shiv,
I am planning to invest on 30th and 31st in retail category. What do you think about the chances of getting allotment ?
Thanks
99.99%… My associates are telling me Retail response was quite muted on the first day as compared to the NHAI Bonds. But it will start picking up today onwards when they will start getting calls from their brokers or when they will read and think about it, sitting in their homes.
Dear Shiv,
Getting timely updates from you is indeed very helpful. One request – Whenever you get information that retail portion is likely to reach full subscription level on next day, please let us know as early as possible. So that we can stop applying next day onwards. Thanks
:-).. I’ll try to do that but cannot commit as I might fail to get such an info or probably it slips off my mind to inform you.. 🙂
Dear Shiv,
I have still not finished applying in IRFC. Please tell me when to stop putting applications.
When is NHAI listing ? Why is it taking so long to list ?
Thanks
Hi TCB.. IRFC issue is approximately 75% subscribed in the retail category so I think by tomorrow some kind of issue closure news should pour in.
NHAI listing hasnt happened today so there is a 99.9% probability that it will happen either tomorrow or day after. Public cos. take their own time to get things done. Probably they want IRFC issue to close first before listing NHAI bonds so that people dont get influenced by it.
Dear Shiv,
Do you mean to say that NHAI may have a bad listing and government does not want this to negatively effect subscription of IRFC ? Is this the reason for delay in listing of NHAI ?
Dear Shiv,
What is the latest about retails subscription ? When is closure expected ? Can I still apply to get full subscription ? Thanks
IRFC issue is closing today i.e. February 3rd itself.
Hi TCB.. I absolutely did not mean to say that.. NHAI will definitely have a very good listing but at the same time the mood is already quite bullish for IRFC. They just want to ride the momentum.
Hi TCB… Retail portion has been subscribed 99% (Rs. 1872 Crores out of Rs. 1890 Crores) till Day 6 of the issue period i.e. February 2nd. I think the issue will get closed tomorrow. I dont think anybody will get full allotment now onwards.
Dear Shiv,
I have put some applications on 02/02/12, just before bank closing time. Cheques for these are still not debited from my bank account. Do you think I will get full allotment for these applications ? Otherwise I want to stop the payment of these cheques. So please reply as soon as possible.
How accurate is your information about retail subscription ? I am asking this because my case is a borderline case. So if there are chances of error in your information, that may reduce chances of allotment to me.
Thanks
Hi TCB.. Though I’m quite confident of the reliability of the information I got from my sources, I would advise you to take your decisions independent of this info. I dont want you to suffer any losses or miss your gains based on my info. The issue has closed today, that is 100% confirmed.
Hi Shiv, I missed the train (IRFC). Any other AAA TFB are in pipeline?
Dear Shiv,
For the IRFC issue, I have no other reliable sources of information, except you. So I have no other option but to take decisions based on the info given by you. Obviously this does not mean that you are responsible for my losses. On the contrary, I am grateful to you for providing this info. Based on this info I have decided not to cancel my applications by stopping the payment of my cheques. Hoping for the best. Thanks as always.
Hi Amlan… Rural Electrification Corporation (REC) is the fifth and the latest one to get the required approvals to issue these Tax-Free Bonds. It has already filed Draft Prospectus for the issue. It is expected to hit the markets in the last week of February or first fortnight of March.
Hi Shiv,
It seems REC TFB is coming on 6th March.
http://economictimes.indiatimes.com/markets/bonds/rec-tax-free-bonds-issue-to-open-on-march-6/articleshow/12114381.cms
I want to invest for 10 years and not for listing gains. Can you please advise how is REC compared to NHAI/IRFC in terms of stability/security (Crisil/Care ratings)?
Great!!… :-)… I wish you get full allotment and make loads of money on listing… That will result in money making for me also as I’ve also applied in IRFC.. 🙂
If I be honest even I fall under that category, the frenzy does really get into your head whether it be bond issues, buybacks, IPOs, rights issues whatever. What we’re talking about seems to be important and everything else fades in the background.
Good idea for a post 🙂
Ya actually… 🙂
I found the draft prospectus of these bonds on SEBI’s website:
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1326788294955.pdf
Thanks Vikas.
Hi Manshu,
Thanks for this timely post. I read your blog thru flipboard on ipad almost every night at bedtime.
If an Indian resident invests > 5Lakhs in these bonds, what would be the tax implications for them? Would I have to declare them my IT returns?
I want to invest >5L in these bonds but I am wondering if there would be some things I should keep in mind – I know I wouldn’t be treated as a retail investor.
Interesting, I’ve recently started using Flipboard but I don’t know how to set it up so I definitely follow something. I mean the articles are thrown my way and I read them, is there a setting to define how you can read something? Thanks!
So, when you invest more than 5 lakhs you will no longer be considered retail, as a result the interest rate you get will be slightly lower but then the income remains tax free.
– Add the onemint’s rss feed in google reader
– Access google reader thru flipboard.
– Once you have opened google reader on flipboard, click on google reader on top and then select Onemint from that list.
– Once Onemint is open, click on Add on top/left to add it directly into flipboard.
OMG OneMint looks beautiful through Flipboard! I know I’m biased 😉
Thanks so much for letting me know how to do this!!!
Thanks Shiv for the details.
You mentioned Oct 15th is the interest payout date for these bonds, can you please tell me the same for NHAI bonds issue that we had earlier?
Thanks,
Vic
Hi.. It is October 1st every year for NHAI Bonds.
hehehe.. arey nahin boss, it is not laziness, it happens.. things just slip when you do Multi Tasking… 🙂
Hi Manshu… Please change the Face Value of each bond to Rs. 1,000 from Rs. 5,000, it might create some confusion. Minimum investment size is Rs. 10,000 (or 10 bonds) and thereafter in multiples of Rs. 5,000 (5 bonds).
Also, ICRA has also rated this issue, as ‘AAA’, so please add ICRA as well along with Crisil & CARE.
Thanks Shiv – updated it. Changing the image is a lot more time consuming than simple tables so just inserted a table there right now. Will see if I can modify the earlier image and put it back in.
Oh Ok.. I did not have any idea about it, I’m yet to face any such difficulty.. :-).. thanks anyways!! The text written above the table also mentions the Face Value as Rs. 5,000, please change that as well.
That’s because it is only difficult for lazy people like me 🙂
Changed the text as well – thanks again!
Hi,
I have few questions:
1. What is the maximum amount that can be invested in this bond?
2. I understand the returns are tax free but is the invested amount also tax free?
3. There are 2 tenures for this bond (10 and 15) when is the earliest when I can start withdrawing certain amount from the investment?
4. How is the interest paid out? Monthly / Quaterly / Yearly or end of Tenure?
5. If I sell it in NSE or BSE, how do i receive the interest on the amount that i had invested till that day?
6. Is this one time investment or recurring deposits need to happen?
Thanks,
Jinit.
Hi Mr. Jinit
Here is my shot at your queries:
1. Rs. 5 lakhs is the maximum limit for Category III Retail Investors. There is No Limit for Category I & Category II investors.
2. Invested Amount is always Tax-Free.
3. If taken in the Demat mode, you can sell these bonds on NSE/BSE anytime after listing. Listing is expected to happen by the last week of February or first week of March.
4. Interest will be paid on an annual basis on October 15th every year.
5. If you sell these bonds in between two record dates (say October 1st, 2012 and October 1st, 2013), you will not be paid any interest, but you’ll get capital appreciation, if any. The buyer of the bonds will get the interest amount for the whole year on October 15th. But then the price of these bonds will fall after it becomes ex-interest.
6. This is only one time investment.
I hope I could answer all your queries in a simple language. If you have any further queries, just put them here.
To anyone who has the information,
If I have two demat accounts and if I transfer these bonds from my first demat account to my second demat account by off-market transfer, will I get lower interest post transfer ?
Thanks
Probably, yes. I don’t imagine the registrars taking note whether the transfer is off-market or through exchange. Most likely, they will keep the Demat numbers of the original buyers and pay higher interest to these demat holders only.
Krunal,
Presuming your Mother is in Less than 20% Tax bracket category, Invest in long terms FDs in NATIONALIZED Bank that should give her about 9.75% p.a.
(Stay away from co-operative banks).
That’s the Best Risk-Adjusted option in her case.
Hi Manshu… Face Value of each bond is Rs. 1,000 & not Rs. 5,000, so minimum investment size is Rs. 10,000 (or 10 bonds) and thereafter in multiples of Rs. 5,000 (5 bonds).
Any difference between this bond and earlier tax free bonds issued by NHAI & PFC?
The big difference is that the interest rate that retail investors get can only be had if you subscribe during the offer. If you buy it from the stock exchange post listing then the interest rate will be lower.
Hi Manshu
is it worth to buy these bonds instead of FD ?
from where we can buy these ? any online process ?
thanks
shrikant
Yes, they yield better. There are a lot of nuances though and I have a detailed post explaining the comparison that you can go through here:
http://www.onemint.com/2011/12/29/comparing-tax-free-bonds-and-sbi-fixed-deposit-returns/
Essentially, while it is better to get hold of these bonds, the difference is not as dramatic as it is sometimes made out to be. I think you can check your broker like ICICI Direct to see if the bonds appear in their system or not, I don’t know of it right now.
Dear Manshu,
Allotment to retail will be on what basis – First come first serve or Proportional ?
Thanks
It is FCFS for retail. So invest on Day 1
TCB,
It will be first come first serve basis & Retail investors are those who apply below 5l.
Dear Manshu,
For NHAI Bonds, Investors investing 5L were under retail category. Is it different in this issue (less than 5L) ?
Thanks
Dear manshu,
I am a regular reader of this forum. This is a very good site to get updates of the ongoing activities.
Coming to my query,
What will be the better option to choose fromfor me
1. Invest in railway bond for term of 10 yrs in retail or
2. Invest in jp ass. Company fd
As I want to put this money on my mother’s name, as this is my father’s money who has passed away & she has no other source income, so suggest me one optio considering my mother’s tax liability.
FD of JP Asso ??Keep away self from real estate companies.
Neither of option looks suitable for you.
If your mother is senior citizen then look for Sr.Citizen Saving Scheme of Indian post with quarterly interest payment of 9% or their monthly income plans.You can also try for fixed deposits with monthly interest payments of your bank.But keep self away from real estate sector.
One correction,,rather real estate the word infrastructure looks justified.
In a similar situation, I would go for a combination of ultra safe investments like SBI fixed deposits and these type of tax free bonds. I wouldn’t go near any real estate fixed deposits even if the yield is a bit high because of the extra risk that comes with it.