HUDCO Tax Free Bond Details

by Manshu on January 25, 2012

in Fixed Deposits

This article is an older article about the HUDCO bonds that were issued last year, click here to read the latest review of HUDCO tax free bonds. 

Like Indian Railways, HUDCO is also going to come up with tax free bonds starting on the 27th January and they offer a slightly higher rate, just a little bit higher than the Indian Railways tax free bonds.

While Indian Railways offered 8.15% for the 10 year series  and 8.30% for 15 years, HUDCO is going to offer 8.22% for the 10 year series and 8.35% for the 15 year series.

There is a difference in rating as well and HUDCO is rated Fitch AA+ by Fitch and CARE AA+ by CARE which is a notch lower than the Indian Railway issue.

The minimum investment needed is Rs. 10,000 and you can invest in multiples of Rs. 1,000 after that.  The bonds will list on both NSE and BSE and the bond issue size is Rs. 4,684.72 crores.

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 8.22% 8.35%
Interest Rate: Other Investors 8.10% 8.20%
Interest Payment Annual Annual

This issue also has what’s being called the step down feature which means that the higher interest rate that the retail investors get is only applicable as long as they hold the bonds. If they sell the bonds on the stock exchange then the person who buys it from them will not get the higher rate but will instead get the rate decided for the other categories.

Now, let’s take a look at some questions that came up on yesterday’s post and are relevant here as well.

Can NRIs invest in the HUDCO tax free bonds? 

Yes, NRIs can also apply to this offer and can either buy it in the retail category or the other category.

Are these tax free bond issues better than fixed deposits?

I have done fairly detailed (perhaps a bit too detailed) calculations to compare the returns between a SBI fixed deposit and a tax free bond and that shows that bond returns are better than the fixed deposits. You can look at the post to see the detailed numbers.

Who falls under the retail category?

Individuals and NRIs who are going to invest less than Rs. 5 lakhs will fall under the retail category.

How will the shares be allotted – first come first serve or proportional allotment to everyone?

I couldn’t locate this information but MoneyVriksh left a comment yesterday stating that it will be first come first serve. I think it makes sense to apply early since there is a chance of over-subscription.

What is tax free: Is the principal tax free or the interest tax free?

This is not like the 80CCF infrastructure bonds that are open right now so don’t confuse these bonds with them. This is truly tax free in the sense that the interest you receive from these bonds will not be taxed.

The infrastructure bonds are called tax saving bonds but are not tax free. They save tax because when you invest in them then you can reduce the amount of investment (up to a maximum of Rs. 20,000) from your income and lower your tax incidence. But the interest income on them is taxable, so they are not tax free.

As far as the principal being tax free is concerned – the principal is always tax free. That’s your money anyway and tax is charged only on the income by the way of interest or capital gains.

This is all I can think of to write about the HUDCO tax free bonds but if you have any more questions then please leave a comment.

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{ 72 comments… read them below or add one }

TCB January 25, 2012 at 9:51 am

Dear Manshu,

If HUDCO is a government owned company like NHAI and Railways, why its rating is lower (AA+ for HUDCO compared to AAA for NHAI & Railways) ?

Thanks

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Manshu January 25, 2012 at 8:24 pm

A company is a different entity from the government so while people may assume that the government will never let its own entity default on debt, the rater has to assess the financial situation of the company.

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bemoneyaware January 25, 2012 at 10:26 am

What is the exit strategy in these bonds? If we buy these bonds are we stuck with these bonds for next 10 /5 years?
Other than selling on exchange(which depends on demand supply) is there an exit route?

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Manshu January 25, 2012 at 8:22 pm

No there’s no other exit route as far as I know, but given how high interest rates currently are, I think a market will develop for them. If you’re uncomfortable about the tenure then medium term fixed deposits or FMPs are a good alternative.

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Shiv Kukreja January 25, 2012 at 8:46 pm

Hi Manshu… I think big issues like SBI 9.95% Bonds, NHAI 8.30% Tax-Free Bonds, PFC 8.30% Tax-Free Bonds or IRFC Tax-Free Bonds are quite big enough to provide liquidity to the investors to exit from these investments.

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Manshu January 25, 2012 at 8:53 pm

A market may develop and probably will, but the price may settle lower than the par value which is what I meant.

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Manoj Kumar January 25, 2012 at 1:48 pm

Please specify whether this bond is secured or unsecured in nature

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Manshu January 25, 2012 at 8:20 pm

It is secured.

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pattu January 26, 2012 at 9:44 am

Manshu,

I have been reading about these bonds in many financial websites. I think the question of who should invest in them and why, does not seem to be answered in enough detail.

Personally I don’t find anything attractive in these bonds for wealth building. I am not alone in this.

If some people with specific goals/needs must stay away from them then this information should be included in each such article. Otherwise such articles fall short of the motive of the blog: “making better financial decisions”

I would expect reviews from you. Not reproduction of information that can be sourced elsewhere. Yes the information is useful when found here. But is incomplete without a review.

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Manshu January 26, 2012 at 9:56 am

From your comment you seem to be insinuating that I’m deliberately keeping away something that should be mentioned. Is that correct?

These are ultra safe investments which yield higher (post tax and risk adjusted) than everything that’s available on the market right now.

Further, I’ve included points that people have raised in emails and comments and done a very detailed comparison between fixed deposits and these bonds also. It’s not possible to say anything new for me with every issue that comes out simply because there isn’t so much new stuff going on here.

I don’t have anything more to add to this based on what I know right now.

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Manshu January 26, 2012 at 9:58 am

Also, how do you define wealth building? How does investing in safe instruments that yield high returns don’t count in wealth building?

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pattu January 26, 2012 at 12:22 pm

Regarding Wealth building I believe in what Hemant says here:

http://www.tflguide.com/2011/12/pfc-tax-free-bonds.html

I insinuate nothing. I am merely pointing out that articles about investment options in blogs such as yours (which have no conflict of interest) should contain information about who should invest and who should keep away. Without this the article in my view is incomplete.

I am pretty sure you are not doing anything deliberately. The answer to who should invest and who shouldn’t will make a difference. It helps one to make “better financial decisions”. If you don’t wish to address this that is your prerogative.

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Ashok January 26, 2012 at 1:48 pm

I don’t agree with Pattu.

Blogs like these cannot advice generically on who should invest and who shouldn’t. These are better given by financial advisers who know the clients situation better. And of course, customers should be willing to pay for good financial advice, and not look out for free generic advice. People should be willing to accept responsibility for their financial decisions.

>>It helps one to make “better financial decisions”.
The only things that helps make better financial decisions are reading/learning thru blogs like these AND then APPLY them according to your own situation. How will blogs like these know your unique situation?

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Manshu January 26, 2012 at 6:43 pm

Thanks Ashok – I’ve felt that it’s important to highlight catches in a product which I do but in this one I couldn’t find any and wherever people have asked questions about specific situations I’ve tried to respond as much as I can. This is not something new of course, this is how it has always been here so I’m glad to see that long time readers like you support the way it works.

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Manshu January 26, 2012 at 2:05 pm

In the context of that article Hemant defines wealth creation as investing in equities only – are you telling me that you are 100% invested in equities, if so then what has the 24% fall last year taught you?

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pattu January 26, 2012 at 3:45 pm

This is not about my investment decisions (which includes many past and present mistakes). My comment pertains to what I feel lacks in such articles on investment products. If like Ashok you don’t agree with me that is fine.

Agree with Ashok that generic advice is not applicable to all. However generic advice is available on all other investment products. So why not on these? To me this is part of financial literacy. Why is fin. literary important?
Download the pdf files on articles like
http://www.vinayahs.com/archives/2012/01/10/guest-post-the-power-finance-corporation-pfc-tax-free-bond-issue-should-you-invest-an-analysis-by-mr-nikhil-shah/

and you will see how these bonds are sold in all wrong ways.

Is it possible to even make general statements on who should invest in these? Now I don’t the answer. If I did that would have been my comment. Saying I wont answer the question is fine. Saying I don’t know is fine. I don’t agree with Ashok that we cant answer such a question.

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Manshu January 26, 2012 at 6:39 pm

If this is not about your investments then what is this about?

You first commented saying you are not interested in these bonds because they don’t help in building wealth, and it turned out that your definition was based on a catch phrase in an article that defined building wealth narrowly as investing in equities.

But it is obvious that you don’t agree that one can invest 100% in equities so where does one invest?

In products like these of course. And this is a good product – if you decide to compare this with a product from cash flows that are reinvested in that for the same rate for 10 years of course you’re going to find different results – and the best part is that I’ve even written on that here on a post called comparing returns between SBI fixed deposit and tax free bonds.

Wherever there are catches in a product like double fee in a fund of funds, or a low IRR in an insurance product, or a currency risk in a mutual fund I highlight that.

I don’t see any catch like that in this product that’s why I haven’t highlighted anything.

What could have been a simple question from you about who should not invest in this bonds (which I don’t know who shouldn’t) is instead long winding prose on how this is just a reproduction of things anywhere else on the web and pontification on what it means to help someone make a better decision.

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pattu January 26, 2012 at 7:33 pm

I didn’t want to ask that question. I wanted to express my view/criticism that I consider such articles incomplete without this information. You choose to ignore it. That is fine by me. I am talking about suitability and not about catches and I know you do point out them out and I do know you are quite sincere in what you write.

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Manshu January 26, 2012 at 7:43 pm

I’m not choosing to ignore your criticism but I’m saying it’s not valid here. It’s a simple product – get 8.22% for 10 years and all income on it is tax free. So now in my opinion this is a good deal and I’m seeing how I can get my family to invest in them as well. Now whether it is suitable for someone else or not depends on what someone wants to do and that’s what is discussed in comments. I’ve seen people ask if it’s a good product to invest for their mother or should they invest in bonds of JP Associates, whether someone should sell their PFC bonds to invest in these to get listing gains, will these be good to invest in instead of FMPs and many more. I can’t see a way to move this discussion up to the posts.

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pattu January 26, 2012 at 8:12 pm

Okay. I understand. Thank you for patiently responding.

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Manshu January 26, 2012 at 8:20 pm

I appreciate that very much – thanks.

bemoneyaware January 27, 2012 at 10:22 am

My two cents on I would expect reviews from you. Not reproduction of information that can be sourced elsewhere. Yes the information is useful when found here. But is incomplete without a review.

It’s about looking glass half full or half empty. Every finance newspaper, magazine, blog would have information on such bonds. But the similarity ends there. Onemint.com gives a platform with the information as the starting point. On this platform readers can discuss, ask questions and also answer the questions so that each of us are better than alone which as the tag line is helps to make better financial decisions . The best part of onemint is you can ask questions freely and expect answers(as you found out). 7000+ readers of this blog is testimony of the fact that onemint/Manshu is reliable, trustworthy and useful!

As these bonds are similar to NHAI Tax Free Bonds and various things have been discussed in that thread (124 comments as of now Jan 27 10:14 a,m) discussing them again would be just repetition. Related links and comments are a great source of information, not to be ignored.

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jayant ogale January 26, 2012 at 11:44 pm

hi,
will you please mail me the application forms for hudco and indian railways tax free bonds?
[2 each] one for me and other for my wife.
i tried to download it from net but could not .
thanks for your help
jayant

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Shiv Kukreja January 27, 2012 at 12:48 am

Hi Mr. Jayant… OneMint is a platform where Manshu and others try to help investors or general public in making their financial decisions. It would be asking for too much if you want Manshu to mail you these application forms. For application forms, you need to contact people like us or companies like Bajaj Capital etc. We actually earn through incentives we get from companies like NHAI or IRFC or IDFC or L&T etc.

To facilitate readers/investors like you, we tried to put web links here to download these application forms online. We did it for IDFC and L&T Infra Bonds and also for NHAI Tax-free Bonds. Here is the web link to download IRFC and HUDCO Tax Free Bond application forms online:

http://sbicapsecu.co.in/pdfstamping/PDFBondMaster.aspx?SubBrokerName=ShivKumarKukreja

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

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Rajesh February 6, 2012 at 12:34 pm

Manshu,
Which Infrastructure bond is better or safer or which one i choose ou tof IDFC ,L&T,HUDCO,REC is cumulative better option for more returns or the option 1 please le me know

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Ramesh February 22, 2012 at 1:52 pm

NRIs are required to pay income tax on their global income. If they buy tax free bonds in India they donot have to pay tax on interest in India but they have to treat interest earned as their global income in USA. In such a case is there any sense in buying tax free bonds by NRIs?

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yugan March 6, 2012 at 10:49 pm

good question. i had the same question. i think it won’t be beneficial to nri’s ‘cos we need to show the interest as income and pay taxes on it in usa.

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Anand February 24, 2012 at 11:34 pm

Manshu,
Request, let me have your view on following:
Propose to Premature withdrawal of Rs. Ten lakhs ( 1% penalty) from Senior Citizen savings scheme and park that money in REC tax free bond for me and my wife for 10/15 years. I am in 20% IT bracket. Whether doing so is worth?
REC tax free bond issue is likely to be on 5th March,2012
Regards
Anand

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anupma February 28, 2012 at 11:59 am

is the allotment in HUDCO Tax free bonds complete?

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Shiv Kukreja February 28, 2012 at 1:13 pm

Hi anupma.. HUDCO Tax Free Bonds allotment has not been done as yet as the issue closed quite late on February 10th.

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mahesh March 1, 2012 at 3:23 pm

when is the probale date of allotment? One month and dont know whether bonds are alloted or not.

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Shiv Kukreja March 1, 2012 at 3:45 pm

Hi Mahesh… I think it should happen over the weekend starting Friday or maximum by Monday.

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Thomas Mathew March 1, 2012 at 2:39 pm

When will the allotment be completed?

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TCB March 1, 2012 at 9:42 pm

Dear Shiv,

Do you have any information about coupan rate for REC tax-free Bond issue ?

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Shiv Kukreja March 1, 2012 at 10:04 pm

Hi TCB… Not yet but it should be somewhere between 7.9% and 8.2%. Retail Investors’ category has been reduced to Rs. 1 lac as compared to Rs. 5 lacs in earlier issues.

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SowmyaNarayan March 4, 2012 at 1:13 pm

When is the allotment of the HUDCO bonds going to happen? Will it be after the listing in NSE or BSE?

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bemoneyaware March 5, 2012 at 3:31 am

As per Allotment status HUDCO Tax Free Bond would be allotted by 5 or 6 March, the Registrar of bonds is Karvy
HUDCO subscription TILL 09-FEB-2012 is as follows:

HUDCO Amt. Collected Allocation % Subscribed
CAT – I 2177 2108 103%
CAT – II 1218 1171 104%
CAT – III 916 1405 65%

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Manshu March 5, 2012 at 4:23 am

Thanks BMA.

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MITHILA KUMBHAT March 7, 2012 at 9:41 am

are hudco bonds alloted ?

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bemoneyaware March 7, 2012 at 10:19 am

Quoting from the Subscrption Status HUDCO & IRFC
6 Mar 2012 Update
All allotment process is completed check out your DP for credit of Hudco Bonds. Today or tomorrow allotment link upload by registrar.

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shashwat March 9, 2012 at 7:53 pm

IRFC listed at marginal premium as compared to NHAI because of the step down clause in IRFC bonds. Is there a similar clause in REC bonds?

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Shiv Kukreja March 9, 2012 at 8:03 pm

Hi Mr. Shashwat… Yes, the “Step Down” clause exists in REC bonds as well but IRFC bonds listed at a marginal discount as compared to NHAI bonds and not at a premium as you mentioned.

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mitesh sheth March 10, 2012 at 2:37 pm

dear sir , still to day t free bond not alloted.on which day it will be alloted

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Shiv Kukreja March 13, 2012 at 11:17 am

Hi… Here is the link to check the Allotment Status of HUDCO Tax Free Bonds:

http://mis.karvycomputershare.com/ipo/

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Ajay March 13, 2012 at 1:13 pm

Any idea about listing date?

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ram dwivedi March 14, 2012 at 10:40 am

i,m waiting hudco listing date,

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Shiv Kukreja March 16, 2012 at 7:50 pm

Hi… HUDCO Tax Free Bonds are going to list on the BSE & NSE with effect from Tuesday, March 20, 2012.

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Manshu March 19, 2012 at 3:48 am

Thanks Shiv!

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Shiv Kukreja March 16, 2012 at 7:51 pm

Source:

http://www.bseindia.com/cirbrief/new_notice_detail.asp?noticeid={8193B2A0-2D62-4E57-B45A-432A4A4532D3}&noticeno=20120316-17&dt=3/16/2012&icount=17&totcount=24&flag=0

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Shiv Kukreja March 20, 2012 at 10:29 am

Worst of HUDCO listing fears has come true. These bonds have got listed today at Rs. 979, touched a high of Rs. 979.90, a low of Rs. 949.10 and currently trading at Rs. 954. It has been quite a bad listing and lowers investors’ confidence in these tax-free bonds quite a lot.

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VikasG March 21, 2012 at 7:24 pm

Can anyone post a link to the quotes for hudco bonds – maybe a link to google finance/yahoo finance or similar sites. Thanks.

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Shiv Kukreja March 21, 2012 at 7:34 pm

Hi Mr. VikasG

Here is the link to all of the Bonds/NCDs listed on the NSE:

http://www.nseindia.com/live_market/dynaContent/live_watch/equities_stock_watch.htm?cat=SEC

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VikasG March 21, 2012 at 7:26 pm
Manshu March 25, 2012 at 1:03 am

Thanks Vikas, I guess I should have mentioned in the post that the links that you see on the names of these bonds take you to the same place.

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Arun Kumar Jain May 11, 2012 at 5:05 pm

Please inform the cut of date for payment of Interest on Hudco Bonds

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Shiv Kukreja May 11, 2012 at 5:39 pm

Hi Mr. Arun… Interest payment date for HUDCO Bonds is March 5th every year.

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Akshay Thakker May 22, 2012 at 11:08 am

Hi Manshu:

Thank you for such a detailed breakup of the features. I subscribed to the HUDCO bond IPO and was allocated 100 bonds. However, now I would like to close the demat in which these bonds were allocated and do an offline transfer to my OWN second demat. My question is, will this be considered a secondary market transaction and trigger the step down feature?

Thanks in advance for your answer.

Best,
Akshay

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Manshu May 23, 2012 at 6:06 am

Akshay, this is the first time I’m hearing of this type of query and while I’m not sure of the answer I think the step down clause should not trigger since you’re not buying this from the secondary market.

However don’t take my word for it since I’m not aware of any other transaction that happened this way and it’ll be better to see if someone who knows this for sure can answer your question.

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Akshay Thakker May 23, 2012 at 4:50 pm

Thank you Manshu. Your willingness to help is much appreciated.

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Shiv Kukreja May 23, 2012 at 4:22 pm

Hi Mr. Akshay

You will continue getting the same interest rate of 8.35% (15Y) or 8.22% (10Y) in this case and there will be no reduction after the transfer. HUDCO will track it on the basis of your PAN.

Source: HUDCO Tax Free Bonds Prospectus

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Akshay Thakker May 23, 2012 at 4:49 pm

Thank you so much for the information Shiv. This is very helpful.

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Manshu May 23, 2012 at 5:36 pm

You’re welcome Akshay.

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Shiv Kukreja May 23, 2012 at 7:18 pm

My Pleasure! :-)

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Manshu May 23, 2012 at 5:35 pm

Thanks Shiv, you’re awesome as ever!

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Shiv Kukreja May 23, 2012 at 7:19 pm

Thanks Manshu! :-)

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TULARAM PATEL May 30, 2012 at 12:36 pm

I have invested in ‘HUDCO Infrastructure Bonds Series-I’ in 1997. Whether, bond is redeemed or not, how can I ensure?.Kindly advise me the procedure.

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Manshu May 30, 2012 at 6:03 pm

I don’t see any information come up when I search for this bond. Do you have any documents of this bond, does it say what the maturity is or the term of the bond is?

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Ravi Bhat July 8, 2012 at 4:13 pm

My case is similar to Tularam Patel.

I had taken 20 hudco infrastructure bonds in 1997 redeemable in April 2007. I have not redeemed it and still have the original letter of allotment. Need some advice on what is to be done on this.

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Shiv Kukreja July 8, 2012 at 8:13 pm

Hi Mr. Patel and Mr. Bhat… Please check the below pasted link, it might help you people to get your investment back. The tenure of the bonds was 10 year and it matured on April 24 2007. You need to contact the R&T agent – Beetal Financial and surrender the certificate to get your money back.

http://www.hudco.org/writereaddata/redemnotice.pdf

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pankaj doshi July 17, 2012 at 8:48 pm

non recipt of tds cert for breaking period pl send the same toc the address or mail on above mail id
application number holder
25391804 paresh h doshi
25391806 vijay h doshi
25391805 reena p doshi

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TARUN BHARTY January 2, 2013 at 10:45 am

When can we expect Tax Saving Bond this year.

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Shiv Kukreja January 2, 2013 at 11:04 am

Hi Tarun… Tax Saving Bonds u/s. 80CCF will not be available this financial year as the exemption has been withheld by Mr. Pranab Mukherjee.

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