REC is the first company to come out with tax free bonds this year, and I have written about them earlier last week. In that review I said that there is not much difference in bonds from different companies and it doesn’t really matter which company you buy the bonds from.
However, Shiv pointed me to aÂ review of REC bonds by Business Line in which they recommend that you buy these bonds instead of waiting, and their rationale makes sense to me.
The interest rates on these bonds are capped at the maximum G-Sec rate of comparable maturity and BL states that if interest rates were to go down in the near future, something which the RBI could do because of growth slowdown, then the later issues that hit the market will be at a lower rate than the REC issue.
This is akin to what happened this year when the rates are lower when compared to the issues that came out last year. I think that the chances of a rate hike are very unlikely so if you are just procrastinating and don’t have a good reason to wait then go ahead and buy the REC tax free bonds.
Now let me emphasize here that I’m not saying that these bonds are the greatest investment on the planet and everyone should go out and buy them today, there are certainly other options depending on your situation and Ashok has given a good example of one in his situation.
I’m simply stating if you want to buy tax free bonds from the primary market this year, Â then it is a good idea to do so now instead of waiting for other issues which might have a better rate. No one knows the future, but the odds of interest rates going lower is a lot greater than interest rates going down.