IFCI has come out with the first infrastructure bond issue of this year, and I was a bit surprised to see how early they came out with the issue this time.
They had to come out with several tranches last year because they were never able to reach their targets, and I think the same thing is going to happen this year as well.
They will come out with several tranches and so will the other players who are allowed to issue infrastructure bonds.
I had written a fairly comprehensive post on Section 80CCF infrastructure bonds FAQ last year, and you can read that post and the comments to familiarize yourself with these bonds if you aren’t already aware of them or need a refresher.
I think it’s too early to buy these infra bonds right now, and it’s better to wait for a few more issuers to come out with their issues. Don’t expect a much higher interest rate from the other issuers though because the interest that they can offer is capped, and the interest rate difference isn’t going to be much.
The other thing that I want to emphasize is that the real benefit of these bonds is that they allow you tax benefits to the tune of Rs. 20,000 over and above what you save by investing in Section 80C instruments, so if you don’t think you will be able to max out Rs. 1 lakh investment in 80C, then don’t bother with these bonds.
I’m going to review each of these issues in detail, and use this page as a calendar and summary page for every infrastructure bond issued.
If you want to see some more details on the issue then let me know and I will modify the table.
| S.No. | Issuer | Series | Tenure | Open & Close Date | Interest Rate |
| 1 | IDFC Tranche 2 | Series 1 | 10 years with a buyback option at 5 years | Jan 11 2012 – Feb 25 2012 |
8.70% |
| 2 | IDFC Tranche 2 | Series 2 | 10 years with a buyback option at 5 years | Jan 11 2012 – Feb 25 2012 |
8.70% compounded annually |
| 3 | Srei Infrastructure Finance | Series 1 | 10 years with a buyback option at 5 years | Dec 31st 2011 – Jan 31st 2012 |
8.90% |
| 4 | Srei Infrastructure Finance | Series 2 | 10 years with a buyback option at 5 years | Dec 31st 2011 – Jan 31st 2012 |
8.90% but compounded and will be paid at maturity |
| 5 | Srei Infrastructure Finance | Series 3 | 15 years with a buyback option at 5 years | Dec 31st 2011 – Jan 31st 2012 |
9.15% |
| 6 | Srei Infrastructure Finance | Series 4 | 15 years with a buyback option at 5 years | Dec 31st 2011 – Jan 31st 2012 |
9.15% but compounded and will be paid at maturity |
| 7 | REC | Series 1 | 10 years with a buyback option after 5 years | Dec 19 2011 – Feb 10 2012 |
8.95% but compounded and will be paid at maturity |
| 8 | REC | Series 2 | 10 years with a buyback option after 5 years | Dec 19 2011 – Feb 10 2012 |
8.95% annual |
| 9 | REC | Series 3 | 15 years with a buyback option after 7 years | Dec 19 2011 – Feb 10 2012 |
9.15% but compounded and will be paid at maturity |
| 10 | REC | Series 4 | 15 years with a buyback option after 7 years | Dec 19 2011 – Feb 10 2012 |
9.15% annual |
| 11 | L&T Infra | Series 1 | 10 years with a buyback option after 5 years | Nov 25Â 2011- Dec 24 2011 |
9.00% payable annual |
| 12 | L&T Infra | Series 2 | 10 years with a buyback option after 5 years | Nov 25Â 2011- Dec 24 2011 |
9.00% effective, but interest will not be paid annually and a lump-sum will be paid at maturity. |
| 13 | IFCI Infra Series IV | Series I | 10 year with 5 year buyback | Nov 30 2011- Jan 16 2012 |
9.09% effective, but interest will not be paid annually and a lump-sum will be paid at maturity. |
| 14 | IFCI Infra Series IV | Series II | 10 years with a buyback option after 5 years | Nov 30 2011- Jan 16 2012 |
9.09% payable annual |
| 15 | IFCI Infra Series IV | Series III | 15 years with a buyback option after 5 years | Nov 30 2011- Jan 16 2012 |
9.16% effective, but interest will not be paid annually and a lump-sum will be paid at maturity. |
| 16 | IFCI Infra Series IV | Series IV | 15 years with a buyback option after 5 years | Nov 30 2011- Jan 16 2012 |
9.16% payable annual |
| 17 | IFCI | Series III – Option 1 | 10 years | Sept 21 2011 – Nov 14 2011 |
8.5% effective, but interest will not be paid annually and a lump-sum will be paid at maturity. |
| 18 | IFCI | Series III – Option II | 10 years | Sept 21 2011 – Nov 14 2011 |
8.5% payable annual |
| 19 | IFCI | Series III – Option III | 15 years | Sept 21 2011 – Nov 14 2011 |
8.75% effective, but interest will not be paid annually and a lump-sum will be paid at maturity. |
| 20 | IFCI | Series III – Option IV | 15 years | Sept 21 2011 – Nov 14 2011 |
8.75% annual |
| 21 | PFC | Series 1 | 10 years with a buyback option after 5 years | Sep 29 2011 – Nov 4 2011 |
8.5% interest payable annual |
| 21 | PFC | Series 2 | 10 years with a buyback option after 5 years | Sep 29 2011 – Nov 4 2011 |
8.5% interest cumulative payable at the end of the term |
| 22 | PFC | Series 3 | 15 years with a buyback option after 7 years | Sep 29 2011 – Nov 4 2011 | 8.75% payable annual |
| 23 | PFC | Series 4 | 15 years with a buyback option after 7 years | Sep 29 2011 – Nov 4 2011 | 8.75% cumulative payable at the end of the term |
| 24 | IDFC | Series 1 | 10 years with a buyback option after 5 years | Nov 21st2011- Dec 16 2011 | 9.00% payable annual |
| 25 | IDFC | Series 2 | 10 years with a buyback option after 5 years | Nov 21st2011- Dec 16 2011 | 9.00% effective, but interest will not be paid annually and a lump-sum will be paid at maturity. |
I haven’t found their prospectus yet and this info is sourced from Moneyvriksh – when I get hold of the prospectus – I will do a more detailed post.
Update 1: Fixed Option 2 interest payment detail per Shiv’s comment
Update 2: Including Option 2 per comment from Shiv (who you can contact to invest in Infrastructure Bonds & Save Tax u/s. 80CCF at skukreja@investitude.co.in)
Isn’t IFCI series IV best option in view of highest interest rate and buyback option at 5 and 7 years?
All Infra Bond issues have Buyback Option after 5 years. IFCI’s extra Rs. 18 (against 9%) or 28 (against 8.95%) should not make much difference to a Tax Saving investor.
Hi Shiv,
Thanks for the reply.
I have other problem related to Income tax , Is it OK to ask here??
Regards,
Ankur
ya ya sure.. please tell me.
Dear Shiv/Manush,
My query is:
I was working in a company till sep2011, while leaving that company I made a payment of 2.43lac to that company against bond pay and notice pay.
Can I deduct this amount from my income to arrive at my net taxable income?
Regards,
Ankur
I don’t know about that – sorry.
Dear Shiv,
Any comments on my query??
Regards,
Ankur
I dont think so the amount paid to the company against bond pay & notice pay is allowed as a deduction from income to arrive at net taxable income, as such amount is required to be paid for breach of contract entered into between the employer & employee.
Hi Ankur.. At this point of time I’m unaware of its treatment but I’ll get back to you on this. I think you should get some tax relief while calculating your taxable income.
Dear Shiv,
If you could find any suitable reply to my query?
Hi Ankur… I’ll definitely come back to you on this. I’m not getting enough time to work on it. You’ll get my response on this by coming sunday.
Hi Manshu/Shiv,
Q1. I would like to know how the interest earned on these bonds will be taxed in case of “compounded” option. Since the money will be reinvested and will not come to your account how would you know how much interest you have earned and hence how to pay tax on it?
Q2. (a)If the interest rate is guaranteed then what is the meaning of unsecured. (b) If the interest rate is guaranteed then what is the meaning of ratings by various agencies? (c) If the ineterest rate is guaranteed then isn’t it best to go with the bond providing highest interest rate (IFCI series IV above), however small it is.
Q3 How the Tax free bonds and Long term infrastructure bond is different?
Q4 What is Gsec and what is its significance?
Hi Ankur.. Your queries are a bit difficult to answer but I’ll try my best to answer in the most simple manner..
1) Have you ever invested in Post Office NSCs – National Saving Certificates? The interest portion gets compounded there. There is a special interest calculator in NSCs for Taxation purposes and every taxpayer has to include interest income as per that calculator. In the absence of any calculator/clarity for Infrastructure Bonds, you can either pay tax on the interest income annually or once you redeem these bonds after 5/10 years. This is what I know about it.
2) Who says the interest, or for that matter the principal itself, is guaranteed ?? They just say that the company will pay 9% (or 8.95% or 9.09%) as the interest and your principal amount after the Buyback period/Maturity period. Nobody gives any guarantee of the principal or the interest payments.
Now comes into picture the “Secured/Unsecured” part and the “Credit Ratings”. In case of issuer’s extremely unhealthy financial condition like Bankruptcy, if the issuer company’s equivalent assets can be liquidated for paying back the bondholders’ initial investments, then the issue is called Secured. If not then it is Unsecured.
Credit Ratings are based on several factors like quality of issuer’s financial statements, whether the issuer is backed by the parent or not, the issue is backed by some valuable assets or not, whether the issue is a public issue or private placement and so many other factors that even some analysts would find it hard to judge.
Given a choice between 9% IDFC/L&T issue and 9.09% IFCI issue, I would go for IDFC/L&T issue as those bonds were Secured and I trust IDFC’s/L&T’s management more than IFCI’s.
3) This query has been answered here on OneMint many a times now but readers keep on asking it again & again. Tax-Free Bonds investment does not provide any tax exemption under any section of I-T Act. Its just that the interest earned is tax-free. Whereas, Infra Bonds provide tax exemption u/s 80CCF but the interest earned is fully taxable as per the investor’s tax slab.
4) G-Secs are the Government Securities issued by the RBI on behalf of the Government of India. Whenever the Govt. requires funds for some kind of expenditure, it issues these securities and financial institutions like Mutual Funds, Insurance Cos. etc. invest in these securities. G-Secs (and more specifically 10-year G-Secs) are considered as the Benchmark for many Fixed Income products.
I hope I could answer most of your queries.
Any idea about LIC Infrastructure bonds? Right from last year there has been a suspense as to when they are going to launch it! Please let us know if there is any update.
I’ve not heard or read anything that suggests they are going to come out with that issue even this year. Just curious as to why you’re waiting for that issue?
Manshu,
Thanks for the reply. No specific reason, was following it up last financial year so that I can take it then, but looks like they have not started issuing it till now. I was also curious to know what interest rate they may offer, as they claim that it would be one of the best 🙂
So the thing that happened last year Divya was that since these bonds are limited on the rate of interest they can offer – LIC said we will juice up returns by offering people a free policy and the regulators objected to that. I don’t remember now if they specifically objected to this gimmick or just the fact that LIC wanted to issue infra bonds. And after that there was no news on that or at least I didn’t see or read anything.
Thanks Manshu
Hi Manshu,
In addition to my query given above, I would like to ask that should we invest in the bonds in physical or demat mode?
Also is the any TDS on annual interest exceeding Rs. 2500 per annum, in case the bonds are held in physical form?
Regards,
Manish
Shiv,
I would be obliged if u could give answer to my concerns. I am really confused what to do so?
Shiv, waiting for a response from u on it.
I would take these bonds in the Demat mode as it is safe & easier to keep the investments in Demat mode. Also there is a chance of Capital Gains on listing, if the interest rates fall drastically between today & the Buyback date.
Hi Manshu,
I would like to know whether it is better to invest in L&T Infra Bonds issue closing tommorow, or should I opt for applying in IFCI or REC Infra Bond issue which are still available for subscription, though both of them are private placement & unsecured in nature.
In case it is fine to apply for bonds issued by IFCI or REC, should I go in for 10 or 15 year bond series & which one is better?
Also should the application be for regular annual interest or interest on maturity?
What is the tax implications, & is there any TDS on maturity on bonds applied under cumulative option?
Please revert back at the earliest, as I need to invest in this month itself & submit proof of it.
Thanks,
Manish
Manish – these are decisions that you must take based on what you are comfortable with – I generally don’t tell anyone here what they should do because there are only a few things that are absolutely good for everyone.
For most things the answer is in the shades of gray and depends on what you want and what your preference is.
Shiv,
I would be obliged if u could give answer to my concerns. I am really confused what to do so?
Shiv, waiting for a response from u.
Hi Manish… If I were at your place, I would have invested in IDFC or L&T Infra Bonds as my first preferences, then in REC Bonds & lastly in IFCI Bonds. The biggest reason for me to invest in Infra Bonds is the Tax Savings these bonds provide, so I would take the tax benefit & cash out of it as soon as possible. The minimum lock-in period is 5 years so I would avoid a lock-in period of 7 years. Also, annual interest option gives me something back every year, so I’ll take that.
As far as my understanding goes, there is No TDS if either the bonds are taken in the Demat mode or the interest earned every year is Rs. 2500 or less, in the physical mode. So, if the interest is 8.95% (as it is in REC Bonds), the investment should not exceed Rs. 27933.
Hi, Have do you rate IFCI Infrastructure Bonds Series IV as against IDFC ? Which is better ? Regards, VR
Hey manshu!
how you doing? Looks like IFCI bond status is out. I got some money 130rs credited to my account with the name of IFCI. But , there are no links on status anywhere yet.
Hey Mithlesh – I’m good, how are you?
No, haven’t seen it anywhere. The Karvy Karisma link doesn’t seem to have it yet: http://karisma.karvy.com/investor/jsp/IDFC-APP.jsp
I’ll check this some more and post later.
Hi Manshu,
good morning!
Just to let you know the IFCI bonds have been alloted to the DMAT account. I got an sms from CDSL regarding the allotment of the bonds. However i am not sure about whether the status can be checked
That’s great buddy – thanks a lot for letting me know!!!
Hi
Can i buy these infra bonds through online.
Hi Manshu,
Many thanks for the information on infra bonds. It is very useful for tax planning.
I am holding 4 units of IDFC infrastructure bonds & few Mutual funds with ICICIDirect demat account. Now I want to close this demat account and transfer the current holdings to Indiabulls demat account.
1. Can you please tell me whether I can transfer infra bonds? If yes, what is the procedure? Where do the interest & redemption money gets credited?
2. Can you please tell me whether I can transfer mutual funds? If yes, what is the procedure?
Thanks in advance,
Muneswar
Hi Muneshwar,
1. You can rematerialize them and hold them in physical form but you can’t transfer them before lock in period. See the comments on this post for details: http://www.onemint.com/2011/01/18/email-question-unable-to-close-demat-account-because-of-locked-in-infrastructure-bond/
2. Yes, you can transfer MFs but I don’t know what the procedure is – sorry.
Can I apply for Infra bonds with joint demat holding (mine as first name) as a single applicant?
Yes you can do that.
Hi Manshu.. what I understand with Ravi’s query is that he holds a joint demat account and wants to invest in Infra Bonds in his name as the sole applicant. If my understanding is right, I’m afraid he cannot do that.
The application form must have the applicant(s) name(s) in the same order as it is there in the Demat account, otherwise the application will get rejected .
oh I am sorry, I didn’t realize it – you must be correct. So if he applies for the bond in the same order who will be eligible for tax deduction?
I apologize Ravi.
P.S. Check out today’s post.
Sole/First Applicant is eligible for the Tax Deduction.
Thanks Manju & Shiv for the timely response.
My demat is not linked with any trading account.
Few add-on queries:
1. During redemption or, buyback, what will be the procedure?
2. In which account will I get the credit (money)?
3. Will I require co-demat holder signature at the time of redemption?
4. I believe if co-applicant sign is required than I wont be able to transfer it to other demat account.
FYI:
Last year I invested in IFCI infra bonds under single demat holding, now as I am about to close that demat account (high AMC charges), I could not transfer it to another demat account (joint holding, me as first holder) due to lock in status.
I had to apply for remat & today I received the physical bond certificate.
My apologies Manshu for incorrectly spelling out your name in the last post.
No problem and I deeply appreciate your comment. It’s amazing how many people make that mistake and in fact last week someone wrote an entire post quoting me and called me Manish! I then emailed him that you have my name wrong and it still took him a couple of times to figure out what he was doing wrong!!! LOL
He might have confused you with Manish of jagoinvestor.com.
No, it was something else, he explained why he made the mistake but I don’t recall what it was – I think something to do with having an earlier email or something. Not important though.
Hi Mr. Ravi
1. If you are opting for the Buyback Facility in advance and on maturity, no action will be required at your end. The registrar will contact you and get the redemption done for you.
2. Money will get credited in the bank account which is linked to your Demat account.
3. Yes, the co-applicant’s signature will be required at the time of redemption.
4. Yes, you wont be able to transfer it to any other Demat account without the co-applicant’s signature.
Hi Manshu,
IFCI has come out with Series -IV. You can include it in the calendar. Also adding any issues that are anticipated to the list would be useful.
Thanks Girish – I’ll add that today.
Not going to add future issues because I don’t have any info other than what’s reported in newspapers about what may potentially come out.
Hi Manshu
As the corporate employees have been getting mails from their HR departments to submit Investment Proofs as per their Tax Declaration, I think Tax Planning season has officially kicked off from today. I’ve also been getting a large no. of calls from people for investment in Infrastructure Bonds. Many of these people are not able to get the application forms to invest in these bonds. So, I asked my associates – SBI Capital Securities to provide me an online link which I can share with my investors/clients. To help with the matters, I’m sharing this web link with all the readers of OneMint. I request you also to please check this link once & let me have your view about it.
For IDFC Infra Bonds: http://www.sbicapsecu.co.in/pdfstamping/IDFCBOND_KUKREJA.aspx
For L&T Infra Bonds:
http://www.sbicapsecu.co.in/pdfstamping/lntinfra_kukreja.aspx
The link takes the investors to an 8 pager application form. Investors can print the first page of the form, which is to be filled & submitted along with other relevant docs. They can also check other relevant info which is there on the ramaining pages like collection centres, Lead Managers, Lead Brokers, Financials of the Issuer, Risk Factors etc.
In case any reader has any query regarding this link (E-Form) or wants to invest in Infrastructure Bonds – IDFC or L&T, Call/SMS 9811797407 (Gurgaon, Delhi or Noida) or mail us at ojascap@gmail.com
Thanks – I have a post up on that today in case you missed it.
Thanks a lot Manshu! I hope it is going to help the readers of OneMint and people who want to invest in IDFC and L&T Infrastructure Bonds. Thank you once again.
Thanks to you Shiv!
send me infra tax saving bond allert
Hi Manshu
Details of L&T Infra Bonds issue are out.
Rate of Interest – 9% p.a. (payable either Annual or Cumulative)
Issue Opens – November 25, 2011
Issue Closes – December 24, 2011
Credit Rating – “ICRA AA+†and “CARE AA+â€
Minimum Investment – 5 Bonds of Face Value Rs. 1,000 each
Listing – NSE and BSE
Tenure and Lock-in Period – 10 years and 5 years respectively
Buyback Amount – Rs. 1538.62 (Cumulative Int. Option after 5 years) and Rs. 1,828.04 (Cumulative Int. Option after 7 years) and Rs. 1,000 (Annual Int. Option after 5 or 7 years)
Maturity Amount – Rs. 2,367.36 (Cumulative Int. Option) and Rs. 1,000 (Annual Int. Option)
REC Infra Tax Saving Bonds issue is also expected to hit the markets very soon.
For more info or to invest in IDFC, REC & L&T Infrastructure Bonds & save tax u/s 80CCF, Call/SMS 9811797407 (Gurgaon, Delhi or Noida).
Errata – Listing only on BSE & not on NSE
Thanks for the info Shiv and new post coming up shortly. Thanks!!!
Hi Manshu & Shiv,
Thanks for your inputs. The article and the comments are very informative and helpful.
I had wanted to invest in L&T, just considering its reputation in construction. However since it was not issued, I had planned to invest in IDFC. Now after seeing Shiv’s comment that L&T issue is going to be open and with the same % interest, I am in need some help.
1. L&T vs IDFC – I have seen Shiv’s comment that interest % is not significant reason to wait for any other bonds. However, is there any reason to consider L&T over IDFC or vice-versa. I understand the L&T prospectus is not yet released, however any information you have on it and upcoming REC as well would be helpful.
2. Online Vs Physical application – I have seen across various websites that the main difference between these two is that, in Physical application we receive the Physical/hardcopy Bond and Coupon to the specified address and TDS would be attracted when we redeem/buyback the bond. In the case of Online application there is no Physical/hardcopy Bond and Coupon that we would receive and that there is no TDS attracted on redeem/buyback. However one of the consultant advised me to take the Physical bond saying the opposite of what I have mentioned w.r.t TDS. I would like to avoid TDS, hence please advice. I have a demat a/c with ICICI, so I preferred investing through it, but I can apply physical if required.
3. I also read that TDS is attracted if the interest amount exceeds Rs.2500/-. Is that information correct, if so, is it on every bond I redeem/buy back or the total redemption/buyback will be considered. For e.g., with two separate bonds, if one bond interest is Rs.2300/- (TDS not applicable) but with two bonds considered together total interest with comes to Rs.4600/- (TDS applicable)
4. Any other important information I should be considering.
Appreciate your patience and response.
Thanks in advance.
Vidya,
Let me take a crack at your questions –
1. I’d prefer L&T to IDFC because of the somewhat tumultuous history of IDFC but to be honest I don’t think IDFC is risky or anything. In the end, there isn’t much difference in the risk profile between these bond issuers. I can only say that buy it from a different issuer than last time that’s all.
2. Online should not attract TDS.
3. The interest is still taxable but the company won’t deduct TDS, so to that extent you will have to add this to your income and pay appropriate tax on it.
As far as I know TDS will not be deducted on any bonds that are Demat and listed as well. I may be wrong on this but this is to the best of my knowledge.
Thank you Manshu. I didn’t invest in Infra last year. So may be I can do it partly between L&T and IDFC.
Please do keep us posted once you have the L&T Infra Prospectus.
Thank you once again.
Hi Vidya
Here you’ve the L&T Infra Bonds Prospectus link. Actually, I took the info that I posted yesterday from the prospectus itself.
http://www.icicisecurities.com/CMT/Upload/ArticleAttachments/LT%20Infra%20Tranche%201%20Prospectus.pdf
Moreover, in Demat form as well as the physical form, there is No TDS, unless you are investing more than Rs. 27,777 only in physical form. In Demat form, there wont be any TDS whatsoever is the interest amount. You are right in mentioning that Rs. 2,500 is the limit above which TDS would be deducted but that is in physical form. With Rs. 20,000 as an investment, one will get Rs. 1,800 as the interest in a financial year. The limit of Rs. 2,500 would breach in case the investment is above Rs. 27,777 (Rs. 2,500 / 9%). The interest earned would be taxable for sure, as per your tax slab.
Also, in case I had to choose between IDFC and L&T, I would have gone for IDFC as my dealings related to Infra Bond issues gave me more confidence in IDFC’s management. Also, IDFC issue is rated “AAA” whereas L&T issue is rated “AA+”. So that is also a factor to keep in mind. Interest Rate in both the issues is the same at 9%.
Thanks for that comprehensive response Shiv.
Thank you Shiv and Manshu for the prospectus. I am glad I’m learning things.
I have decided to put partly between IDFC and L&T.
Thanks once again.
Great, you’re welcome.
Thanks Vidya – here’s the post on L&T http://www.onemint.com/2011/11/24/lt-infrastructure-80ccf-bonds/
Which company is better to invest under 80CCF. Please let me know.
Most of these are quite similar, not much to distinguish one from the other.
i will like toknow how the tax on infrast bonds will be treated in the forthcomming changes
if one goes in for yrly payment of interest how itwill be treated for first two yrs and from 3rd yr onwards
I don’t understand your question – why would tax treatment change from the third year? It will remain the way tax is treated on interest. I mean the bond itself has nothing to do with how the tax treatment changes or maybe I don’t get what you’re asking.
Dear Manshu,
Between IDFC & L&T infra bonds. Which is better for returns and safety ?
Regards
Jayakumar
IDFC with 9% is better for returns of course, but I’m not quite certain which one will be safer. Perhaps L&T Infra because of all the issues that IDFC has had in the past.