Just a few days ago PFC announced their tax free bond issue, and now HUDCO has also announced the second tranche of their tax free bond issue.
The issue structure is similar to the earlier one but the interest rate is lower than the first tranche. This is because the interest rates on these bonds is tied to the interest rate on G-Secs and those yields have come down since the issue of the first bond.
The rate is still however slightly higher than those of the second tranche of PFC tax free bonds.Â Â The issue is also rated one notch lower than those of PFC. It is ratedÂ â€˜CARE AA+â€™ from CARE and â€˜IND AA+â€™ from IRRPL.
|Option||Tranche- II Series 1||Tranche- II Series 2|
|Tenor||10 years||15 years|
|Minimum Investment||Rs. 5,000||Rs. 5,000|
|Coupon Rate for Retail Investors||7.53%||7.69%|
HUDCO Tax Free Bond Open and Close Date
This issue opens on the 25th February 2013 and closes on March 15 2013.
There was a question on the previous post about how the interest will be paid, so I’m adding the answer to that in this post as well. The interest will be paid annual, and there is no option of getting the interest reinvested in the bond like you can do in a fixed deposit. At the time of maturity you get interest for the final year plus whatever you initially invested in the bonds.
Listing of Bonds
This doesn’t mean that your money is locked in the bond for 10 or 15 years as these bonds will be listed on the NSE as well as BSE and you can sell the bonds there at any time. However, the market price of the bonds fluctuate on the stock exchange so you may get a higher or lower price than what you paid at the time of purchase. Presently, interest rates are going down, and bond prices go up when interest rates go down so the chances that the price of these bonds are higher on the stock exchange one year down the road is greater than the chance of their price being lower than the face value.
Who is a retail investor?
A retail investor is an individual or a HUF who invests less than Rs. 10 lakhs in this bond. If you buy the bonds from the stock exchange then you won’t get the additional interest that is available to the retail investor.
How can I buy the bond?
If you have a Demat account and a trading account with a broker like ICICI Direct or Edelweiss, then you should be able to buy the bond online itself. It is not necessary to have a demat account to buy these bonds though, and you can also go to a branch of Karvy, ICICI Securities or Axis Capital to buy these bonds. These are the registrars of the bonds so you should have the option to buy the bonds from them, but I’m sure there are other sources where you can buy them as well. Please leave a comment if you have bought or are going to buy these HUDCO tax free bonds from one of the other sources.
I don’t have much to add other than what I said in the post about the PFC tax free bonds, which is the fact that this is a good interest rate for people in the 30% bracket, and these bonds may not even exist next year so it is probably a good idea to have some part of your fixed income portfolio in a tax free bond issue, either this or any of the other ones. You might also want to diversify and buy the bonds from two or three different issuers since their terms are so similar.