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.Â
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. Â 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?Â
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.
Hi… HUDCO Tax Free Bonds are going to list on the BSE & NSE with effect from Tuesday, March 20, 2012.
Thanks Shiv!
i,m waiting hudco listing date,
Hi… Here is the link to check the Allotment Status of HUDCO Tax Free Bonds:
http://mis.karvycomputershare.com/ipo/
Any idea about listing date?
dear sir , still to day t free bond not alloted.on which day it will be alloted
IRFC listed at marginal premium as compared to NHAI because of the step down clause in IRFC bonds. Is there a similar clause in REC bonds?
Hi Mr. Shashwat… Yes, the “Step Down” clause exists in REC bonds as well but IRFC bonds listed at a marginal discount as compared to NHAI bonds and not at a premium as you mentioned.
are hudco bonds alloted ?
Quoting from the Subscrption Status HUDCO & IRFC
6 Mar 2012 Update
All allotment process is completed check out your DP for credit of Hudco Bonds. Today or tomorrow allotment link upload by registrar.
As per Allotment status HUDCO Tax Free Bond would be allotted by 5 or 6 March, the Registrar of bonds is Karvy
HUDCO subscription TILL 09-FEB-2012 is as follows:
HUDCO Amt. Collected Allocation % Subscribed
CAT – I 2177 2108 103%
CAT – II 1218 1171 104%
CAT – III 916 1405 65%
Thanks BMA.
When is the allotment of the HUDCO bonds going to happen? Will it be after the listing in NSE or BSE?
Dear Shiv,
Do you have any information about coupan rate for REC tax-free Bond issue ?
Hi TCB… Not yet but it should be somewhere between 7.9% and 8.2%. Retail Investors’ category has been reduced to Rs. 1 lac as compared to Rs. 5 lacs in earlier issues.
When will the allotment be completed?
is the allotment in HUDCO Tax free bonds complete?
Hi anupma.. HUDCO Tax Free Bonds allotment has not been done as yet as the issue closed quite late on February 10th.
when is the probale date of allotment? One month and dont know whether bonds are alloted or not.
Hi Mahesh… I think it should happen over the weekend starting Friday or maximum by Monday.
Manshu,
Request, let me have your view on following:
Propose to Premature withdrawal of Rs. Ten lakhs ( 1% penalty) from Senior Citizen savings scheme and park that money in REC tax free bond for me and my wife for 10/15 years. I am in 20% IT bracket. Whether doing so is worth?
REC tax free bond issue is likely to be on 5th March,2012
Regards
Anand
NRIs are required to pay income tax on their global income. If they buy tax free bonds in India they donot have to pay tax on interest in India but they have to treat interest earned as their global income in USA. In such a case is there any sense in buying tax free bonds by NRIs?
good question. i had the same question. i think it won’t be beneficial to nri’s ‘cos we need to show the interest as income and pay taxes on it in usa.
Manshu,
Which Infrastructure bond is better or safer or which one i choose ou tof IDFC ,L&T,HUDCO,REC is cumulative better option for more returns or the option 1 please le me know
Hi Mr. Jayant… OneMint is a platform where Manshu and others try to help investors or general public in making their financial decisions. It would be asking for too much if you want Manshu to mail you these application forms. For application forms, you need to contact people like us or companies like Bajaj Capital etc. We actually earn through incentives we get from companies like NHAI or IRFC or IDFC or L&T etc.
To facilitate readers/investors like you, we tried to put web links here to download these application forms online. We did it for IDFC and L&T Infra Bonds and also for NHAI Tax-free Bonds. Here is the web link to download IRFC and HUDCO Tax Free Bond application forms online:
http://sbicapsecu.co.in/pdfstamping/PDFBondMaster.aspx?SubBrokerName=ShivKumarKukreja
In case any reader/investor has any query regarding this link (E-Form), HUDCO or IRFC Tax-Free Bonds or wants to invest in these Tax-Free Bonds, Call/SMS 9811797407 (Gurgaon, Delhi or Noida) or mail us at ojascap@gmail.com
hi,
will you please mail me the application forms for hudco and indian railways tax free bonds?
[2 each] one for me and other for my wife.
i tried to download it from net but could not .
thanks for your help
jayant
Manshu,
I have been reading about these bonds in many financial websites. I think the question of who should invest in them and why, does not seem to be answered in enough detail.
Personally I don’t find anything attractive in these bonds for wealth building. I am not alone in this.
If some people with specific goals/needs must stay away from them then this information should be included in each such article. Otherwise such articles fall short of the motive of the blog: “making better financial decisions”
I would expect reviews from you. Not reproduction of information that can be sourced elsewhere. Yes the information is useful when found here. But is incomplete without a review.
From your comment you seem to be insinuating that I’m deliberately keeping away something that should be mentioned. Is that correct?
These are ultra safe investments which yield higher (post tax and risk adjusted) than everything that’s available on the market right now.
Further, I’ve included points that people have raised in emails and comments and done a very detailed comparison between fixed deposits and these bonds also. It’s not possible to say anything new for me with every issue that comes out simply because there isn’t so much new stuff going on here.
I don’t have anything more to add to this based on what I know right now.
Also, how do you define wealth building? How does investing in safe instruments that yield high returns don’t count in wealth building?
Regarding Wealth building I believe in what Hemant says here:
http://www.tflguide.com/2011/12/pfc-tax-free-bonds.html
I insinuate nothing. I am merely pointing out that articles about investment options in blogs such as yours (which have no conflict of interest) should contain information about who should invest and who should keep away. Without this the article in my view is incomplete.
I am pretty sure you are not doing anything deliberately. The answer to who should invest and who shouldn’t will make a difference. It helps one to make “better financial decisionsâ€. If you don’t wish to address this that is your prerogative.
I don’t agree with Pattu.
Blogs like these cannot advice generically on who should invest and who shouldn’t. These are better given by financial advisers who know the clients situation better. And of course, customers should be willing to pay for good financial advice, and not look out for free generic advice. People should be willing to accept responsibility for their financial decisions.
>>It helps one to make “better financial decisionsâ€.
The only things that helps make better financial decisions are reading/learning thru blogs like these AND then APPLY them according to your own situation. How will blogs like these know your unique situation?
Thanks Ashok – I’ve felt that it’s important to highlight catches in a product which I do but in this one I couldn’t find any and wherever people have asked questions about specific situations I’ve tried to respond as much as I can. This is not something new of course, this is how it has always been here so I’m glad to see that long time readers like you support the way it works.
In the context of that article Hemant defines wealth creation as investing in equities only – are you telling me that you are 100% invested in equities, if so then what has the 24% fall last year taught you?
This is not about my investment decisions (which includes many past and present mistakes). My comment pertains to what I feel lacks in such articles on investment products. If like Ashok you don’t agree with me that is fine.
Agree with Ashok that generic advice is not applicable to all. However generic advice is available on all other investment products. So why not on these? To me this is part of financial literacy. Why is fin. literary important?
Download the pdf files on articles like
http://www.vinayahs.com/archives/2012/01/10/guest-post-the-power-finance-corporation-pfc-tax-free-bond-issue-should-you-invest-an-analysis-by-mr-nikhil-shah/
and you will see how these bonds are sold in all wrong ways.
Is it possible to even make general statements on who should invest in these? Now I don’t the answer. If I did that would have been my comment. Saying I wont answer the question is fine. Saying I don’t know is fine. I don’t agree with Ashok that we cant answer such a question.
If this is not about your investments then what is this about?
You first commented saying you are not interested in these bonds because they don’t help in building wealth, and it turned out that your definition was based on a catch phrase in an article that defined building wealth narrowly as investing in equities.
But it is obvious that you don’t agree that one can invest 100% in equities so where does one invest?
In products like these of course. And this is a good product – if you decide to compare this with a product from cash flows that are reinvested in that for the same rate for 10 years of course you’re going to find different results – and the best part is that I’ve even written on that here on a post called comparing returns between SBI fixed deposit and tax free bonds.
Wherever there are catches in a product like double fee in a fund of funds, or a low IRR in an insurance product, or a currency risk in a mutual fund I highlight that.
I don’t see any catch like that in this product that’s why I haven’t highlighted anything.
What could have been a simple question from you about who should not invest in this bonds (which I don’t know who shouldn’t) is instead long winding prose on how this is just a reproduction of things anywhere else on the web and pontification on what it means to help someone make a better decision.
I didn’t want to ask that question. I wanted to express my view/criticism that I consider such articles incomplete without this information. You choose to ignore it. That is fine by me. I am talking about suitability and not about catches and I know you do point out them out and I do know you are quite sincere in what you write.
I’m not choosing to ignore your criticism but I’m saying it’s not valid here. It’s a simple product – get 8.22% for 10 years and all income on it is tax free. So now in my opinion this is a good deal and I’m seeing how I can get my family to invest in them as well. Now whether it is suitable for someone else or not depends on what someone wants to do and that’s what is discussed in comments. I’ve seen people ask if it’s a good product to invest for their mother or should they invest in bonds of JP Associates, whether someone should sell their PFC bonds to invest in these to get listing gains, will these be good to invest in instead of FMPs and many more. I can’t see a way to move this discussion up to the posts.
Okay. I understand. Thank you for patiently responding.
I appreciate that very much – thanks.
My two cents on I would expect reviews from you. Not reproduction of information that can be sourced elsewhere. Yes the information is useful when found here. But is incomplete without a review.
It’s about looking glass half full or half empty. Every finance newspaper, magazine, blog would have information on such bonds. But the similarity ends there. Onemint.com gives a platform with the information as the starting point. On this platform readers can discuss, ask questions and also answer the questions so that each of us are better than alone which as the tag line is helps to make better financial decisions . The best part of onemint is you can ask questions freely and expect answers(as you found out). 7000+ readers of this blog is testimony of the fact that onemint/Manshu is reliable, trustworthy and useful!
As these bonds are similar to NHAI Tax Free Bonds and various things have been discussed in that thread (124 comments as of now Jan 27 10:14 a,m) discussing them again would be just repetition. Related links and comments are a great source of information, not to be ignored.
Please specify whether this bond is secured or unsecured in nature
It is secured.
What is the exit strategy in these bonds? If we buy these bonds are we stuck with these bonds for next 10 /5 years?
Other than selling on exchange(which depends on demand supply) is there an exit route?
No there’s no other exit route as far as I know, but given how high interest rates currently are, I think a market will develop for them. If you’re uncomfortable about the tenure then medium term fixed deposits or FMPs are a good alternative.
Hi Manshu… I think big issues like SBI 9.95% Bonds, NHAI 8.30% Tax-Free Bonds, PFC 8.30% Tax-Free Bonds or IRFC Tax-Free Bonds are quite big enough to provide liquidity to the investors to exit from these investments.
A market may develop and probably will, but the price may settle lower than the par value which is what I meant.
Dear Manshu,
If HUDCO is a government owned company like NHAI and Railways, why its rating is lower (AA+ for HUDCO compared to AAA for NHAI & Railways) ?
Thanks
A company is a different entity from the government so while people may assume that the government will never let its own entity default on debt, the rater has to assess the financial situation of the company.