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.

72 thoughts on “HUDCO Tax Free Bond Details”

  1. non recipt of tds cert for breaking period pl send the same toc the address or mail on above mail id
    application number holder
    25391804 paresh h doshi
    25391806 vijay h doshi
    25391805 reena p doshi

  2. My case is similar to Tularam Patel.

    I had taken 20 hudco infrastructure bonds in 1997 redeemable in April 2007. I have not redeemed it and still have the original letter of allotment. Need some advice on what is to be done on this.

    1. Hi Mr. Patel and Mr. Bhat… Please check the below pasted link, it might help you people to get your investment back. The tenure of the bonds was 10 year and it matured on April 24 2007. You need to contact the R&T agent – Beetal Financial and surrender the certificate to get your money back.

    1. I don’t see any information come up when I search for this bond. Do you have any documents of this bond, does it say what the maturity is or the term of the bond is?

  3. Hi Manshu:

    Thank you for such a detailed breakup of the features. I subscribed to the HUDCO bond IPO and was allocated 100 bonds. However, now I would like to close the demat in which these bonds were allocated and do an offline transfer to my OWN second demat. My question is, will this be considered a secondary market transaction and trigger the step down feature?

    Thanks in advance for your answer.


    1. Akshay, this is the first time I’m hearing of this type of query and while I’m not sure of the answer I think the step down clause should not trigger since you’re not buying this from the secondary market.

      However don’t take my word for it since I’m not aware of any other transaction that happened this way and it’ll be better to see if someone who knows this for sure can answer your question.

    2. Hi Mr. Akshay

      You will continue getting the same interest rate of 8.35% (15Y) or 8.22% (10Y) in this case and there will be no reduction after the transfer. HUDCO will track it on the basis of your PAN.

      Source: HUDCO Tax Free Bonds Prospectus

    1. Thanks Vikas, I guess I should have mentioned in the post that the links that you see on the names of these bonds take you to the same place.

  4. Can anyone post a link to the quotes for hudco bonds – maybe a link to google finance/yahoo finance or similar sites. Thanks.

  5. Worst of HUDCO listing fears has come true. These bonds have got listed today at Rs. 979, touched a high of Rs. 979.90, a low of Rs. 949.10 and currently trading at Rs. 954. It has been quite a bad listing and lowers investors’ confidence in these tax-free bonds quite a lot.

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