REC 80CCF Infrastructure Bonds

Rural Electrification Corporation (REC) which is a Navratna and has high debt ratings has come with the latest issue of 80CCF infrastructure bonds.

This issue opened on 19th December 2011 and will close on February 10 2012, and has interest rates which are only just slightly lower than the other two issues – IDFC and IFCI that came out recently, though they are higher than the PFC issue.

Here are the four options that you can choose from the REC issue.

Option 1 Option 2 Option 3 Option 4
Face Value Rs. 5,000 Rs. 5,000 Rs. 5,000 Rs. 5,000
Maturity 10 years 10 years 15 years 15 years
Buyback option 5 years 5 years 7 years 7 years
Interest Rate 8.95% 8.95% 9.15% 9.15%
Interest Payment Compounding Annual Compounding Annual


There are going to be questions on which is the best infra bond among the ones that are open right now, and I think all of them are very close, and it’s just not possible for me to say definitively that one is better than the other.

The other question is between annual and compounded options, and if there is a tax benefit of opting for the compounded one because capital gains taxes are lower than tax on tax on interest payment, and the answer to that is it’s not tax efficient because even in the latter option they charge tax on interest and don’t use the capital gains calculation.

Now, you could say that I’d much rather have Rs. 30,308 after 5 years (if you invested 20K in the 5 year buyback option) instead of earning an interest of just Rs. 1,790 in a year and that’s your option but as far as tax is concerned – one is not more efficient than the other.

I don’t know if there are any other infrastructure bonds lined up but there are already quite a few open and  you should pick one soon so that you get the necessary documents for tax purposes in time.


2 thoughts on “REC 80CCF Infrastructure Bonds”

Leave a Reply

Your email address will not be published. Required fields are marked *