4 companies issued tax free bonds earlier this year, and all of these listed in the market. These bonds are great for people who are in the 30% tax bracket because their post tax yield is quite high, and since all of these bonds are listed in the market, you can buy them directly from there even if you weren’t able to subscribe to them the first time around.
The only drawback of buying them from the secondary market is that some of them had the step down feature which meant that when you buy them from the market, you get a slightly lower rate of interest than the primary subscriber. NHAI and PFC didn’t have the step down feature whereas the rest did.
I consider all these bonds quite safe in nature, and it is unlikely that any of these companies will default on their bonds.
So, if they are all alike in terms of safety then how do you decide which is the best tax free bond among them? The price, yield to maturity and term can help decide which is the best bond for you and I’ve created a list of all of them below.
| Issuer | Series | Tenor | Original Coupon |
Date | Credit Rating | Â Market Price on July 14 2012 |
YTM |
|---|---|---|---|---|---|---|---|
| REC | 1 | 10 years |  8.13% | March 06 2012 – March 12 2012 | CRISIL AAA CARE AAA FITCH AAA | Rs. 1,050.00 |  7.20% |
| REC | 2 | 15 years |  8.32% | March 06 2012 – March 12 2012 | CRISIL AAA CARE AAA Fitch AAA | Rs. 1,038.56 |  7.67% |
| Indian Railways | 1 |  10 years |  8.15% | Jan 27 2012 – Feb 10 2012 | CRISIL AAA CARE AAA |  Rs. 1,049.83 |  7.26% |
| Indian Railways | 2 | 15 years |  8.30% | Jan 27 2012 – Feb 10 2012 |  CRISIL AAA CARE AAA |  Rs. 1061.90 |  7.39% |
| HUDCO |  1 |  10 years |  8.22% |  Jan 27 2012 – Feb 10 2012 | Fitch AA+ CARE AA+ |  Rs. 1,039.85 |  7.50% |
| HUDCO |  2 |  15 years |  8.35% |  Jan 27 2012 – Feb 10 2012 | Fitch AA+CARE AA+ |  Rs. 1,050.98 |  7.61% |
| NHAI | 1 | 10 years |  8.20% | Dec 28th2011 - Jan 11th 2012 | CRISIL AAACARE AAA |  Rs. 1,076.50 |  7.07% |
| NHAI | 2 | 15 years |  8.30% | Dec 28th2011 - Jan 11th 2012 | CRISIL AAACARE AAA |  Rs. 1,092.00 |  7.26% |
| PFC | 1 | 10 years |  8.20% | Dec 30th2011 – Jan 16th 2012 | CRISIL AAA ICRA AAA | Rs. 1,069.93 |  7.16% |
| PFC | 2 | 15 years |  8.30% | Dec 30th2011 – Jan 16th 2012 | CRISIL AAA ICRA AAA |  Rs. 1,080.47 |  7.38% |
Based on this you can see that the yields for all of these bonds are very similar and I would say it is hard to pick one over the other and say that one is better than the other based on the data that we see here. Although you see some yields higher than the other I am not sure if this is always the case or it is just the day that I took the data for.
Perhaps the best strategy is to buy a combination of these bonds for differing maturities and thus even diversifying your bond portfolio as well.
This post is from the Suggest a Topic page.
Update: Corrected the error where I said all bonds have the step down feature.