Month: January 2011

Reader Rakesh emailed me with a link to a Moneycontrol story about how LIC may not come out with an infrastructure bond issue by 31st March this year.

LIC is one of the institutions that’s approved to issue infrastructure bonds under Section 80CCF, and there were some news reports earlier that said they would come out with an option where they offer free term insurance along with the bond issue.

I know from comments and emails that a lot of you were waiting for the LIC infrastructure bond issue, so be warned that the chances of them actually coming out are quite low now, and if you’re interested in investing in infrastructure bonds, then it’s time to look at other options now.

Link to Moneycontrol Story

Link to Moneycontrol Video

I’ve got a couple of emails about this subject, so I thought I’d share it here, and see if anyone has any fresh ideas.

These readers bought the 80CCF infrastructure bond in the Demat form, which has been now allotted to them, and credited to their Demat account.

Now, these readers want to close their Demat account, and open one some place else, but they are being told that since the bonds are currently locked – in (these bonds have a lock in period of 5 years) they can’t transfer the bonds to another Demat account.

One way to deal with this situation is to rematerialize the bonds, and get the company to issue a physical certificate to them.

This can be done after the bond has been allotted, and you don’t have to wait for the lock – in period to expire to do this. After the bond has been rematerialized you can close the Demat account, and open a new one.

Does anyone have any other ideas on this, or any experience with the process of rematerialization?

IDFC has come out with the second tranche of its infrastructure bonds, and I thought I’d do a post on them because I love getting emails from people telling me that I should mail them their bond certificates at the earliest.

IDFC Infrastructure Bond’s second tranche is also covered under section 80CCF, which means the primary benefit of these bonds is the Rs. 20,000 reduction in taxable income it enables over and above the Rs. 100,000 deduction in the case of Section 80C.

IDFC Infra Bonds: Opening and Closing Dates

The new issue started from 17th Jan 2011, and will close on 4th February 2011.

Interest Rates and Options

The bonds offer an 8% interest rate, and you have an option of getting interest paid annually, or get a cumulative sum at the end of 5 or 10 years. The bonds mature in 10 years, but there is a buyback option after 5 years which means that you can sell the bonds back to IDFC after 5 years, and don’t have to wait the maturity period of 10 years.

Details	Series 1	Series 2
Face Value	Rs. 5,000	Rs. 5,000
Interest Payment	Annual	No interest will be paid
Interest Rate	8.00%	NA
Buyback	After 5 years and 1 day from allotment	After 5 years and 1 day from allotment
Buyback amount	Rs.5,000	Rs. 7,350
Maturity amount after 10 years	Rs. 5,000	Rs. 10,800

Minimum Investment

The minimum investment in these bonds is Rs. 10,000, and while there is no maximum limit, you can get a lot more than 8% for shorter durations for your money in bank fixed deposits, so it makes sense to not buy more than Rs. 20,000 worth of these bonds.

IDFC Infrastructure Tranche 2 Bonds: Physical and Demat Form Available

These bonds are available in physical as well as demat form, so you if you don’t have a demat account, you can still purchase these bonds .

Credit Rating and Secured Bonds

ICRA has assigned LAAA to these second tranche bonds which indicates stable outlook and highest safety. Fitch has assigned AAA(Ind) also indicating stable outlook.

These infra bonds are secured as well.

Tax Proof for the Bonds

If you buy the bonds in physical form then you will receive a receipt, and some people have indicated that this receipt has been used by them as tax proofs. I’m not sure if everyone is able to do so, but that’s one option, and you should check with your company CA to see if this will do.

Once the bond is allotted, you will get an allotment advice indicating that you have bought the bonds, so you can use that allotment advice for tax proof. Keep in mind that you should update your mailing address attached to your Demat account and trading account, so that there are no issues later on.

Last time around, there was a very good feature with the IDFC bonds where they made a web page where people could just input their application number, and retrieve the allotment advice. They could have it this time as well, so don’t lose your application number.

How to buy the IDFC Infrastructure bonds?

You can buy them through a trading account like ICICI Direct; by filling up the physical forms, and submitting them in a branch that’s accepting them; or through an IFA (Independent Financial Adviser).

I don’t have a list of banks you can go to, but I see that KMCC, ENAM, HDFC Bank, ICICI Securities, JM Financials and IDFC Capital are the lead managers, so if there is a branch of one of these near your house or office, you can try them out.

One last word to let you know that this is not the website of IDFC or the lead managers, so writing a comment and email telling me to send the bond certificate to you or do the “needful” isn’t going to help you.

Now, as is custom – ignore what I just said and write a comment to tell me to send you the bond or do the needful at the earliest.

Also read about the REC Infrastructure Bonds.

This is yet another post from the Suggest a Topic page, and this time we’re going to look at the E-Gold and E-Silver series from NSEL (National Spot Exchange Ltd.)

NSEL enables you to buy gold, silver and copper in electronic form, and hold it in a Demat account.

This opens up another avenue for people interested in buying metals electronically, and now you have another option in addition to gold ETFs, and trading in the commodity exchange.

An Overview of buying E-Gold, E-Silver or E-Copper through NSEL

Opening a separate Demat and Trading account for trading in NSEL

First of all you will have to open a Demat and Trading account with one of the authorized participants with NSEL.

This has to be a separate trading account from the one that you might be using for trading stocks.

There is a list of authorized depository participants (DPs), and you can open an account with any of these to start trading in NSEL.

You can expect to pay an initial charge of about Rs. 350 or so for opening the Demat account depending on who you open this with, and then expect a slightly lower AMC (Annual Maintenance Charge) of about Rs. 250 or so every year on this account.

Some DPs might offer you a scheme where if you give them a refundable deposit of Rs. 2,000 they will waive off the opening charges, and subsequent AMC, so you can check that up.

To open an account go to this link and look up a member in your city, and talk to them.

You will require documents such as PAN, 3 passport photographs, bank proof, and address proof.

Buying E-Gold, E-Silver or E-Copper through NSEL

Once you have your account set up, you can then carry out transactions. You can buy gold, silver or copper, and one unit of the E-Series is equivalent in the following way:

1. E-Gold: 1 gram

2. E-Silver: 100 grams

3. E-Copper: 1 kilo

The commission to transact is about 0.5% if you take the delivery, and 0.05% for intra – day trading. I use the word about because these might differ from one broker to the other, and I wanted to give you gauge of what you can expect.

You can trade the E-Series from 10:00 in the morning to 11:30 in the night on weekdays, and the settlement is done on a T+2 basis.

The price of the three contracts is visible on the website of NSEL, and once you buy a contract, it will be credited to your demat account after settlement.

Converting E-Gold, E-Silver or E-Copper in Physical Form

You can hold the E-Series products in Demat form, and you also have the option of converting it into physical form – this is known as rematerialization.

There are two key things to note here:

1. Rematerialization is currently not done in every city, so if you need this option, then check with the agent first.

2. VAT: When you rematerialize you will have to pay some rematerialization charges (which will be in the range of Rs. 200 for 10 grams gold), but the VAT might be a bigger amount based on how much electronic quantity you hold.

Currently, there are no holding charges, but I don’t know how far this will continue, so you can expect to pay holding charges sometime in the future, if not immediately.

Information I couldn’t find on E-Series Products

There were a couple of things that I wanted to find out, but wasn’t able to get to, and I thought they were meaningful enough to be shared here, and see if anyone else knows about them.

Does SEBI regulate these E-Series Products?

If someone faces an issue with NSEL, or the E-Series products, then who should they address it to. Can they go to SEBI? Is SEBI actively regulating it or does it fall under the purview of some other agency.

Does anyone hold the underlying physical gold?

Gold ETFs hold underlying physical gold equivalent to the number of units of funds they have issued, and they publish the data periodically, but I didn’t find information on who holds the physical gold, or if at all it is being held at somewhere at all times.

If everyone who holds a E-Series contract requests for gold rematerialization then what will happen.

Conclusion

There are no silver ETFs right now, so this is an alternative if you’re looking to invest in silver, but there are gold ETFs that you can look at if you’re looking to invest in gold.

This product doesn’t have a long track record, so even if you are interested in buying E-Gold or E-Series – I’d say it’s better to be safe than sorry, and start off with smaller quantities.