PFC is the latest company to announce tax free bonds, and their issue will start on Monday February 18th 2013, and close on March 15 2013.
Interest rates have been gradually coming down on these tax free bonds since last year and I believe the current issue from PFC has the lowest interest rate of any tax free bond issued since last year.
|Option||Tranche- II Series 1||Tranche- II Series 2|
|Tenor||10 years||15 years|
|Coupon Rate for Retail Investors||7.38%||7.54%|
To be fair, this is not all that lower than the 7.69% being offerred by IIFCL for the same duration, but the trend is clearly downwards, last year all the tax free bonds had a 8 handle for retail investors in the 10 year range.
The bond is ratedÂ â€˜[ICRA] AAAâ€™ by ICRA, Â â€˜CRISIL AAA /Stableâ€™ by CRISIL Â and â€˜CARE AAAâ€™ by CARE, and will be listed on BSE.
Who is a retail investor?
Like other bonds, the definition of retail investor is the same in this issue as well, and an individual or HUF who invests less than Rs. 10 lakhs falls under this category.
The retail investor will get a 0.50% higher interest rate than other investors, but that is only available to people who directly subscribe to the issue and once you buy the bond from the secondary market you no longer get the 0.50% extra interest rate.
Conclusion and Interest Rate Direction
For a retail investor in the 30% tax bracket, these are still good debt options because the bonds listed on the market are trading at higher than face value, and you can use these bonds to form a part of the debt portion of your portfolio. The interest rates have been going lower in the past couple of years, and it is likely that it continues to go down in the near future as well, so it makes sense to lock these rates for the long term while you still can.