Posting will be light for a month

Just a short post to say that I’m off on a vacation for about a month as two of my cousins are getting married and I have a lot of traveling to do.

In the past I’ve written posts in advance and invited guest posters but this time I just decided to take a break and write only if there is time and there is a topic I am thinking about at the time.

So expect very few posts in this month, and a fair bit of delay in answering comment as well.

NHAI Tax Free Bonds Allotment Complete

A few people have commented about receiving an SMS for the Demat allotment of NHAI tax free bonds, and if you applied for these bonds, and haven’t got any notification yet, you should check your Demat account in the next few days and they will most probably show up there.

In the past I’ve seen people not getting to know about these kind of allotments till a long time because their phone number is wrong or something like that and unfortunately none of these companies seem to think it is important to tell people when they are going to allot the bonds or when they are going to list so people have to just keep an eye out for news sources and depend on others to see when others get it and then check their accounts.

The NHAI bonds haven’t started trading yet of course since they were just allotted yesterday and Shiv found out that PFC bonds were listed in the wholesale segment which is a bit unusual. So watch out on Monday to see how they list and where the trading occurs.

Thanks to Amlan Basak, Shiv, Ravi and Bhaskar for sharing this information in comments here. Bhaskar and Shiv also mentioned that they got full allotment – I am not sure if this is applicable to everyone in the retail category but that might well be the case.

If not too much trouble can others who applied for the NHAI issue also leave comments to let everyone else know if you got the allotment or not and what percentage did you get. This not only helps keep track of what happened in this issue but helps make guesstimates for future issues as well.

Financial Planning Clinic, Mis-selling and Consumer Protection

Let’s start with Bemoneyaware’s post on mis-selling and mis-buying which is a comprehensive article with takes from many people on the subject. It has links to a lot of articles and viewpoints about the topic and the one thing that I’d like to say about this issue is that usually not enough responsibility is placed on buyers. I was thinking about this recently when people were making indignant remarks about the Reliance buyback, but the very same folks will be happy to buy shares from the market and flip it to Reliance for a small profit. Your greed is someone else’s opportunity.

Hemant has an excellent article on LIC Jeevan Ankur.

He is associated with the Financial Planners Guild and they are organizing a financial planning clinic in Gurgaon on the 5th February. This is an event where you can meet with some of the financial planners and ask questions and get inputs on financial planning. Here is the link with registration details.

An interesting look on North Korea as an investment destination. I had no idea that so many companies from different parts of the world were interested in investing in North Korea and was really surprised to hear that they have casinos for tourists.

Ajay Shah writes about his personal experience with an unusual way of charging his debit card at the petrol pump in consumer protection issues with payments.

HBR has a useful post on networking for introverts.

Finally, an interesting take on why are people friendly. 

Enjoy your weekend!

Which countries does India import its gold from?

Last week I wrote about the heavy imports from Switzerland and how gold forms the majority of it, and I went to look for the other countries that India imports its gold from.

Switzerland is by far the biggest exporter of gold and the next biggest exporter – UAE is just about a third of Switzerland.

South Africa, Australia and USA are the other big exporters but when compared with Switzerland – they are quite small.

Here is a chart that shows the top 5 countries that India imports its gold from, the figures are for 2010 – 11 and the numbers are in millions of dollars.

Which countries does India import its gold from
Which countries does India import its gold from

As you can see Switzerland exports more gold than the other 4 combined, and  the countries after that are even smaller.

Here is a list of the top 1o countries that India imports its gold from.

U ARAB EMTS 7,508.28
AUSTRALIA 3,027.45
U S A 1,070.71
HONG KONG 402.54
U K 386.17
GERMANY 180.12
CHINA P RP 147.58

Now, here is a pie chart that shows the relative share of some of the biggest gold exporters to India.

Relative share of countries that export gold to India
Relative share of countries that export gold to India

India of course has very negligible gold production, but more than a year ago I wrote a post about gold mining in India and while researching that I was surprised to find that the Ministry of Mines estimates quite a high amount of gold ores in India. With soaring gold prices, it is perhaps time for some tax sops in this sector and allowing the private sector to try to develop gold mines in India.

How are banks calculating interest on savings accounts?

Late last year RBI deregulated the interest rates on savings accounts and allowed banks to set their own rates. This resulted in banks raising their interest rates and creating two slabs of under a lakh and over a lakh.

For example, Yes Bank offers 6% on the saving bank balance of under Rs. 1 lakh and 7% on balances of over a lakh. Similarly, Kotak pays 5.5% for balances of less than a lakh and 6% on balances of over a lakh.

There were a few comments at the time asking about how interest will be calculated and if banks will take the lowest bank balance in a month to calculate that or something else like that.

I was reminded of this discussion when I came across a RBI notification that issues some clarifications on the way interest is calculated.

From reading the second point in there it’s quite clear that the banks will pay you the interest on the basis of your daily balance. So, they will see what your balance was at the end of the day and pay you interest based on that.

The second aspect of that is slightly unclear to me. I read it to understand that if you have a balance of Rs. 1,25,000 in your savings bank account at Yes Bank – they will pay you 6% for Rs. 1,00,000 and 7% for the Rs. 25,000 after that. They are not going to pay  you 7% for the whole amount, which is what I originally thought.

Does anyone have practical experience with this or knows for certain how this is going to be calculated? Please leave a comment or email me if you do as this is going to be of interest to a lot of people.


HUDCO Tax Free Bond Details

This article is an older article about the HUDCO bonds that were issued last year, click here to read the latest review of HUDCO tax free bonds. 

Like Indian Railways, HUDCO is also going to come up with tax free bonds starting on the 27th January and they offer a slightly higher rate, just a little bit higher than the Indian Railways tax free bonds.

While Indian Railways offered 8.15% for the 10 year series  and 8.30% for 15 years, HUDCO is going to offer 8.22% for the 10 year series and 8.35% for the 15 year series.

There is a difference in rating as well and HUDCO is rated Fitch AA+ by Fitch and CARE AA+ by CARE which is a notch lower than the Indian Railway issue.

The minimum investment needed is Rs. 10,000 and you can invest in multiples of Rs. 1,000 after that.  The bonds will list on both NSE and BSE and the bond issue size is Rs. 4,684.72 crores.

Option Series I Series II
Face Value Rs. 1,000 Rs. 1,000
Minimum Investment Rs. 10,000 Rs. 10,000
Tenor 10 years 15 years
Interest Rate: Retail Investors 8.22% 8.35%
Interest Rate: Other Investors 8.10% 8.20%
Interest Payment Annual Annual

This issue also has what’s being called the step down feature which means that the higher interest rate that the retail investors get is only applicable as long as they hold the bonds. If they sell the bonds on the stock exchange then the person who buys it from them will not get the higher rate but will instead get the rate decided for the other categories.

Now, let’s take a look at some questions that came up on yesterday’s post and are relevant here as well.

Can NRIs invest in the HUDCO tax free bonds? 

Yes, NRIs can also apply to this offer and can either buy it in the retail category or the other category.

Are these tax free bond issues better than fixed deposits?

I have done fairly detailed (perhaps a bit too detailed) calculations to compare the returns between a SBI fixed deposit and a tax free bond and that shows that bond returns are better than the fixed deposits. You can look at the post to see the detailed numbers.

Who falls under the retail category?

Individuals and NRIs who are going to invest less than Rs. 5 lakhs will fall under the retail category.

How will the shares be allotted – first come first serve or proportional allotment to everyone?

I couldn’t locate this information but MoneyVriksh left a comment yesterday stating that it will be first come first serve. I think it makes sense to apply early since there is a chance of over-subscription.

What is tax free: Is the principal tax free or the interest tax free?

This is not like the 80CCF infrastructure bonds that are open right now so don’t confuse these bonds with them. This is truly tax free in the sense that the interest you receive from these bonds will not be taxed.

The infrastructure bonds are called tax saving bonds but are not tax free. They save tax because when you invest in them then you can reduce the amount of investment (up to a maximum of Rs. 20,000) from your income and lower your tax incidence. But the interest income on them is taxable, so they are not tax free.

As far as the principal being tax free is concerned – the principal is always tax free. That’s your money anyway and tax is charged only on the income by the way of interest or capital gains.

This is all I can think of to write about the HUDCO tax free bonds but if you have any more questions then please leave a comment.

Indian Railways Tax Free Bond Details

Indian Railways announced the details of their tax free bond issue, and Shiv emailed me the term sheet today.

There is one new and interesting thing about this offer which I’ll come to in a while but before that let’s take a look at the other regular details of these bonds.

There will be two series – one with a 10 year maturity, and the second one with the 15 year maturity, and the interest on both options will be paid annually.

The issue is going to open on January 27th 2012 and is planned to close on the February 10 2012. You have to invest a minimum of Rs. 10,000 and since one bond has a face value of Rs. 1,000, you can invest in Rs. 5,000 multiples after that.

The issue size is Rs. 6,300 crores and the issue has been rated CRISIL AAA and CARE AAA by CRISIL and CARE respectively; this of course is their highest rating. ICRA has rated it AAA as well.

30% of the issue is reserved for the retail investors and this is important because retail investors will get a higher interest rate than other class of investors. An individual investing less than Rs. 5 lakhs will fall under the retail category.

The bonds will also list on the NSE and BSE.

Here are the details of the issue in a snapshot.

Option Series I Series II
Face Value Rs. 1,000 Rs. 1,000
Minimum Investment Rs. 10,000 Rs. 10,000
Tenor 10 years 15 years
Interest Rate: Retail Investors 8.15% 8.30%
Interest Rate: Other Investors 8.00% 8.10%
Interest Payment Annual Annual

As you can see the interest rate that retail investors get is a tad higher than the other categories and they have put in a condition to say that only the first allottee will get the higher rate. So, if you want the higher interest you must subscribe to the issue. If you buy it from the stock exchange then you will not get the retail investor interest rate even if you are a retail investor. You will get the lower interest rate.

This is a clever way of first of all giving an incentive to retail investors to subscribe to the issue and then reduce the overall interest burden because some people will end up selling the bonds in the market and then Indian Rail will not have to pay the higher interest rate for them.

I think this should speed up the subscription of the retail part which was lagging so far in the other issues, and I think this will catch the interest of NRIs as well who can invest in these bonds under either category.

The tax free offers that are coming out right now are fairly good deals and if you are looking for fixed income products then you can consider this issue.


Update: Corrected the face value from Rs. 5,000 to Rs. 1,000 and added ICRA’s credit rating per Shiv’s comment below. 

Reliance Share Buyback Details

Reliance Industries Limited (RIL) announced a share buyback plan along with their quarterly results on Friday, and the main thing to remember about that buyback plan is that Reliance Industries is going to execute it through an open offer and buy the shares from the open market.

This means that the company will go and buy the shares from the stock exchange, and there is no way for a shareholder to offer their shares to Reliance Industries and ask them to buy it for a certain price.

The price of Rs. 870 that’s being discussed is the upper limit at which the company will buy shares, and that in no way indicates that the stock price will reach Rs. 870 in the near future or that you can get Rs. 870 for a share any other way.

Reliance Industries Share Buyback Details
Reliance Industries Share Buyback Details

Over a period of time Reliance will buy its own shares from the market as long as the price is below Rs. 870. If the price rises beyond 870 then they won’t buy any more shares. They are not going to keep buying as long as the price reaches 870 – that’s not their intention at all.

The third aspect of this buyback announcement is the Rs. 10,440 crore upper limit, and this is the maximum the company will spend on the buyback. They are not obligated to spend all of Rs. 10,440 crores, and they will probably not use all of that either. That’s just my guess based on what they did last time and the fact that they have debt worth Rs. 74,503 crores and cash worth Rs. 74,539 crores and they did spend Rs. 1,899 crores on interest payments in the first 9 months of this fiscal so the cash can be used to reduce this debt as well.

I can’t think of anything that’s been announced in this buyback that makes such a material difference so as to start an investment position in Reliance. If you want to speculate for some short term gains then I don’t have any input on that but Business Line has a great article on the currently open buyback offers and they found that out of the 15 offers that are currently open, 14 are much below the maximum price offered by the company, so that gives you an indication of how other offers have recently fared.

Tax Free Bonds Calendar 2012

PFC and NHAI recently came out with tax free bond issues, and two more companies have filed a draft prospectus with SEBI to issue tax free bonds. These two companies are HUDCO (Housing and Urban Development Corporation) and Indian Railways Finance Corporation.

Although the dates and details are still not out – I thought of making a tax free bond calendar much like the 80CCF infrastructure bond calendar.

The benefit of this type of a calendar is that you can view all the rates and details at one place, and not only use them for future but for past reference as well.

It also gives one place for people to leave comments and ask general questions about tax free bond issues. With that in mind – here is a table with details of past as well as future tax free bond issues.


Issuer Series Tenor Interest Rate Date Credit Rating Secured / Unsecured Issue Size Min Inv.
REC 1 10 years 8.13% March 06 2012 – March 12 2012 CRISIL AAACARE AAA FITCH AAA Secured Rs. 3000 crores Rs. 5,000
REC 2 15 years 8.32% March 06 2012 – March 12 2012 CRISIL AAACARE AAAFitch AAA Secured Rs. 3000 crore Rs. 5,000
Indian Railways 1  10 years  8.15% Jan 27 2012 – Feb 10 2012 CRISIL AAACARE AAA  Secured Rs. 6,300 crores Rs. 10,000
Indian Railways 2 15 years 8.30% Jan 27 2012 – Feb 10 2012  CRISIL AAACARE AAA Secured  Rs. 6,300 crore Rs. 10,000
HUDCO  1  10 years  8.22%  Jan 27 2012 – Feb 10 2012 Fitch AA+CARE AA+  Secured Rs. 4684.72 crores Rs. 10,000
HUDCO  2  15 years  8.35%  Jan 27 2012 – Feb 10 2012 Fitch AA+CARE AA+  Secured  Rs. 4684.72 crores Rs. 10,000
NHAI 1 10 years 8.20% Dec 28th2011 -  Jan 11th 2012 CRISIL AAACARE AAA Secured Rs. 10,000 crore Rs. 50,000
NHAI 2 15 years 8.30% Dec 28th2011 -  Jan 11th 2012 CRISIL AAACARE AAA Secured Rs. 10,000 crore Rs. 50,000
PFC 1 10 years 8.20% Dec 30th2011 – Jan 16th 2012 CRISIL AAAICRA AAA Secured Rs. 4,033 crores Rs. 10,000
PFC 2 15 years 8.30% Dec 30th2011 – Jan 16th 2012 CRISIL AAAICRA AAA Secured Rs. 4,033 crores Rs. 10,000

I have taken all the feedback from comments in the 80CCF calendar and increased the number of columns to show more information.

The one thing I’d like to say here is that secured doesn’t mean any kind of guarantee – it simply means that the company has set aside some assets against this bond issue. If anything happens to the company then those assets will be sold to recover the money for the bondholders. That’s all it means – it does not mean a guarantee from the company or the government of India that you will be repaid no matter what.

I’ll have separate posts on the Indian Railways and HUDCO tax free bond issues when their details are announced, and update this table as well.

Exchange Rates, Wills and Twitter Democracy

To start with, Jitendra Solanki writes about Apollo Munich Optima Restore which is a health insurance plan that has got some features which make it attractive relative to other plans.

Ranjan writes about a new IDBI portal to buy government securities from. This is the first of its kind and I will look at it in detail at some point in the future.

Prof. Jayanth Varma writes about the many different kinds of fixed exchange rate regimes. A crisp post with 4 examples of small countries that have fixed exchange rate regimes and have managed them successfully.

The Psy-Fi blog on how government debt is different from personal debt and what governments have done in the past when faced with a huge debt burden.

Paris rolls out the red carpet for Chinese tourists. A great piece on how the French are wooing Chinese tourists.

Bemoneyaware has a great article on the documents that are needed as part of a will. 

Finally, the most incredible thing I read and discovered this week was this piece about Sweden extending its democracy to Twittersphere.

The government of Sweden has the official Twitter account – @sweden and they’re allowing a citizen to tweet through that account for a week and this week the tweets are from Anna.

I’ve followed that account for three or four days and from what I can see there is no censorship at all. She’s tweeting out her mind and next week another Swede will get an opportunity to do that.

There are free countries, and then there are free countries.

Enjoy your weekend!