Tax Free Bonds Calendar 2012

by Manshu on January 22, 2012

in Investments

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.

{ 52 comments… read them below or add one }

Anjani Singh January 22, 2012 at 7:59 am

Hi OneMint,

This is the first time, I am posting a comment. You are doing an extremely good job for the people of India who really need Financial Information (correct, lucid, unbiased).

I wanted to suggest you to add the ticket size and its multiples for investment. For example, NHAI had min 50,000/- as the investment amount. Also, add recommendation [Yes/No with some justification]

Hope this can be done.

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Manshu January 25, 2012 at 2:36 am

Thanks Anjani – those are good suggestions. I’ve added the minimum investment size and since all of these are good issues which are also quite similar I’ve not added recommendation here.

Thanks again, and hope to see your comments appear much more often here.

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santhosh January 22, 2012 at 10:09 am

please specify the minimum investment amount also in the table.

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Manshu January 25, 2012 at 2:36 am

Thanks for your suggestion – added that.

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Shelly January 23, 2012 at 6:31 pm

This is pertaining to a query we received on our blog — bricks-n-mortar.com
The query was relating to the prospects of infrastructure development scenario in India as per GoI’s current five years plan , and relating growth scenario that one may achieve by investing into the recent NHAI’s tax free bonds. We answered the technical aspect of the query, but since we do not specialize much in financial jargon, thought to search it online. It was then that we landed here on this page.

The essence of the query was– NHAI tax free bonds offer 8.20% or 8.30% bonds; but some market analysts project them as 12% capability bonds. HOW?

Could you provide answer to this part of the query for us please.
Thanks and regards,
team(at)bricks-n-mortar.com

Reply

Manshu January 23, 2012 at 10:59 pm

Hi Shelly,

Thanks for your detailed comment, and the way they are calculating is to see the after tax benefit. So, if you were in the 30% tax bracket and did a fixed deposit of 12% then 30% of that will be taxed and you would get an effective interest rate of about 8.4% and that’s where the high number is coming from.

The one thing to keep in mind about this is that bank fixed deposits compound more than once a year and you can get the bank to reinvest the interest income back in the fixed deposit and that way even though a tax free bond is better than a FD with a higher rate of interest, the difference is not always as big as it appears at first.

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Shiv Kukreja January 24, 2012 at 12:58 am

Hi Shelly and Manshu… Just want to add to what Manshu just mentioned in a different way… If an investment, say Fixed Deposit (or popularly called FD), gives 10% rate of interest to an investor who falls in the 30% tax bracket, the investor effectively retains 7% return after paying 3% as taxes. Now, in NHAI’s case, as the 8.30% rate of interest is absolutely tax-free, the same investor would not be required to pay any tax on this interest income. So, for him, 8.30% tax-free = 8.30%/(1-0.309) or 12.01% taxable effective yield. For Institutional Investors like Mutual Funds, Insurance Cos. etc., which pay 32.45% corporate tax, it is even higher at 12.29%.

So, that is how Financial Analysts project it and actually, they are right in their projection as Institutional Investors & HNIs pay quite high taxes when they invest in taxable instruments like Government Securities or FDs. That is also the reason why these issues, like the NHAI one, get oversubscribed on the 1st day itself in the Institutional Investor & HNI categories.

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Shiv Kukreja January 24, 2012 at 1:37 am

Hi Manshu… IRFC & HUDCO Tax-Free Bond details are out.. As expected, both these issues are opening on Jaunary 27th.. IRFC issue is closing on February 10th & HUDCO issue on February 6th. Minimum Application Size is Rs. 10,000 in both the issues, but thereafter in multiples of Rs. 5,000 in IRFC and Rs. 1,000 in HUDCO. Issue sizes are Rs. 9,300 Crore and Rs. 6,684.72 Crore respectively. Both the issues are Secured and will remain open for at least 3 days.

Now the differences, IRFC issue is ‘AAA’ Rated by Crisil, CARE & ICRA, whereas HUDCO issue is ‘AA+’ Rated by Fitch & CARE. IRFC will pay 8.30% (15Y) & 8.15% (10Y) to the Retail Investors investing below 5 lakhs and 8.10% (15Y) & 8% (10Y) to the other categories of investors. HUDCO will pay 8.35% (15Y) & 8.20% (10Y) to the Retail Investors investing below 5 lakhs and 8.20% (15Y) & 8.10% (10Y) to the other categories of investors.

Now, the biggest feature of both these bond issues, the above mentioned higher interest rates for the Retail Investors will cease to exist in case these investments change hands from the first allottee to the subsequent allottee. This feature has been introduced in these tax-free bond issues for the first time and it will be very interesting to see how different categories of investors respond to it, during the offer period as well as post-listing. Mailing you the Term-Sheets of both the issues.

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Ravikumar January 30, 2012 at 7:39 am

Hi,

How about investing the same amount in my PPF account than on tax-free bonds? I saw a blog on comparing the tax-free bonds with SBI 10 yr FD but have we compared it with PPF? Or is it like comparing apples and oranges?

Reply

alamelu January 30, 2012 at 12:07 pm

@ Ravikumar

PPF has a ceiling on the maximum amount that can be deposited.
The interest rate varies from year to year, so it is not predictable.
Also, the nature of the saving is under revision, and soon the principal and interest may
be taxable on withdrawal unlike at present.

Hope this helps

Reply

M R K Goud March 1, 2012 at 4:38 am

Hi!! Manshu

This was last updated in Jan – can you share the latest table. Say, covering all Tax free Bonds in this Financial Year (till 31-Mar-2012).

Thanks & Regards
M R K Goud

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Manshu March 4, 2012 at 6:35 am

Hi there! I’ve added the details on the REC issue which is the one to come out after the ones already present in the table.

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Shiv Kukreja March 4, 2012 at 8:03 pm

Hi Manshu

2nd row in the above table carries dates to be “Jan 27, 2012 – Feb 10, 2012”, please correct it to “March 06, 2012 – March 12, 2012″… thanks!

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Manshu March 4, 2012 at 8:32 pm

Done! Thanks for letting me know!

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Shiv Kukreja March 5, 2012 at 1:37 am

🙂

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ujjwal March 21, 2012 at 7:09 pm

i have a question regarding taxation issues…
i know if i sell before 1 year…STCG ( clubbed with other income)
sell after 1 year..LTCG ( flat 10.36 % without indexation ).
but my question is in the calculation of STCG & LTCG whether the tax-free interest paid should be included in the capital gain or only the gain due to difference in buy and sell price of the bond…please clerify..
example:-
i bought tax free bond of 1 lakh on sept 2011…..got interest 80,000 on march 2012…..
1) if i sell it on april 2012 for 1.1 lakh…what will be STCG ??…will it be on 10,000 or on 90,000 ( 10,000+80,000) ?
2) i sell it on nov 2012 on 1.2 lakh…..what will be LTCG ??

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Shiv Kukreja March 21, 2012 at 7:31 pm

Hi ujjwal

STCG will be applicable only on Rs. 10,000 as Rs. 80,000 interest is absolutely Tax Free. As you mentioned, STCG on these bonds will be clubbed with one’s other income and is taxed as per the tax slab. If you sell these bonds in November 2012, LTCG will be on Rs. 20,000 at 10.3%.

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ujjwal March 21, 2012 at 8:06 pm

@ Shiv
thanks a lot for your reply …now suppose hudco tax free bond interest pay-out day is 13 th oct….now if i buy say 30 th sept and sell 30 th oct…then within 1 month, i will get cool 8% tax-free interest…..is my thinking right ??…..

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Shiv Kukreja March 21, 2012 at 8:55 pm

🙂 :-)… Both the seller from whom you are going to buy these bonds (on Sept. 30th) & the buyer to whom you are going to sell these bonds (on Oct. 30th) are not fools. They will either take interest on these bonds or ask a higher price from you for holding these bonds for such a long period. There is a concept called “Ex-interest” and “Cum-interest” in case of “interest yielding securities” like bonds. There is a date called “Ex-interest Date” or “Record Date” before the interest is paid to the investors on October 15th every year.

After getting Ex-interest, Market Value of all these securities falls to the extent of interest to be paid. So, an investor just cannot enjoy both of these things at the same time – (i) Interest of 8.35% as well as (ii) Capital Appreciation in the market value of these bonds.

e.g. SBI 9.95% bonds were trading at around Rs. 11,350 before getting Ex-interest on March 15th, 2012. On March 15th, the price fell to around Rs. 10,350. The investors who held these bonds on March 14th, 2012, are going to get the interest paid on April 2nd, 2012. If you sell these bonds on March 14th at Rs. 11350, you’ll not get the interest paid @ 9.95%.

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ujjwal March 22, 2012 at 7:36 am

i appreciate your clerification….it is now clear to me….all the best to you…..love and regards….

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Shiv Kukreja March 23, 2012 at 12:36 am

Thank You.. I’m feeling honoured !! 🙂

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Manshu March 24, 2012 at 11:31 pm

As you should for the excellent work you do here!

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Shiv Kukreja March 25, 2012 at 2:47 pm

Thanks Manshu !! 🙂 🙂

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TCB March 22, 2012 at 8:17 am

Dear Shiv,
In the above example, if I buy on 30 sept & sell on 30 oct, I will make short term capital loss because the price would have fallen due to interest payment. Can I adjust this short term capital loss against short term capital gain made in equity or commodities to save capital gain tax ?
Thanks

Reply

Shiv Kukreja March 23, 2012 at 2:42 am

Hi TCB… I’m not 100% sure on this. But, I hope, you should be able to adjust the STCG against this loss.

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Manshu March 24, 2012 at 11:48 pm

Isn’t this the same as dividend stripping in mutual funds that they got rid off a few years ago?

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ujjwal March 25, 2012 at 2:51 am

actually, i did some study…and see that as per sec 70 (iv)….it is not possible…that means loss can not be set off with gain…
” Any loss sustained from a source, the income of which is exempt, is not to be set-off against any taxable income from any other source.”….income tax act–1961….70(iv)…
thanks…all of my query ends here….

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Shiv Kukreja March 25, 2012 at 11:15 am

Hi ujjwal… in the example given above of SBI Bonds, the income is not exempt, rather it is taxable as per the tax slab of the investor. So, I think STCL can be set-off against STCG in case of taxable bonds and not in case of tax free bonds.

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ujjwal March 25, 2012 at 11:41 am

@shiv
the SBI bond will come under 94 (7) law of dividend stripping .as bond must come under UNIT or SECURITY. i think in any case our plan of tax-saving will fail.
sectio 94 (7) says
Where—
(a) any person buys or acquires any securities or unit within a period of 3 months prior to the record date;
(b) such person sells or transfers such securities within a period of 3 months or unit within a period of 9 months after such date;
(c) the dividend or income on such securities or unit received or receivable by such person is exempt,
then, the loss, if any, arising to him on account of such purchase and sale of securities or unit, to the extent such loss does not exceed the amount of dividend or income received or receivable on such securities or unit, shall be ignored for the purposes of computing his income chargeable to tax.

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Shiv Kukreja March 25, 2012 at 11:54 am

ujjwal, condition (c) is not getting fulfilled here… the income is not exempt in case of SBI Bonds.

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ujjwal March 25, 2012 at 12:09 pm

yes shiv. you are right. STCL arising out of saling SBI bond can be set off against STCG.

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ujjwal March 25, 2012 at 11:48 am

@ dear shiv
i think you are right. but in that case of SBI bond, there will be no benefit of taking loss intentionally. you were right in your first reply. market is not fool.

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ujjwal March 25, 2012 at 9:53 am

also, as pointed out by manshu, it can come under dividend stripping rule of 94(7)….so, bottomline is the setting off losses will not be possible.

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ujjwal March 25, 2012 at 2:54 am

@TCB
actually, i did some study…and see that as per sec 70 (iv)….it is not possible…that means loss can not be set off with gain…
” Any loss sustained from a source, the income of which is exempt, is not to be set-off against any taxable income from any other source.”….income tax act–1961….70(iv)…
thanks…all of my query ends here….

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RAJAN April 14, 2012 at 4:29 am

Are there Capital gain bonds where the interest derived on the investment is also income tax free.
Thanks.

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Manshu April 14, 2012 at 6:59 am

Not to the best of my knowledge.

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Shiv Kukreja April 14, 2012 at 5:31 pm

Hi Mr. Rajan

Only 2 cos. can issue Capital Gain Bonds – REC and NHAI. Interest is taxable in case of both the cos.

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Manshu April 15, 2012 at 9:51 pm

Thanks for answering this Shiv – are there any GOI bonds out these days? Someone left a comment asking about them but I’m unaware of such bonds.

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khalid April 15, 2012 at 10:58 pm

Yes one GOI bond is available this point of time and that is AAA rating 8% GOI Savings Bonds (2003).

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Manshu April 16, 2012 at 5:48 am

Thank you – any links on the details will be helpful and appreciated – thanks!

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Shiv Kukreja April 16, 2012 at 9:20 pm

Hi Manshu

8% GOI Bonds, which Khalid mentioned, are taxabale bonds, issued by the RBI on behalf of the Indian Govt. and carry Sovereign Guarantee. There are no other GOI bonds which are available for the Retail Investors, except through Gilt Funds.

But, looking at the current interest rate scenario, I would advise the investor not to invest in 8% GOI Bonds and rather look out for some high yielding Tax-Free Bonds from the secondary markets or to exhaut the 1 lac limit of 8.8% Tax-Free PPF or to invest in Gilt Funds/Income Funds/Short Term Funds/Bank Deposits.

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RAJAN April 17, 2012 at 9:29 am

HI !
Is it necessary for an NRO A/C holder to file IT returns once the tax has been deducted at source by the Banks ? Thank you.

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Anand June 20, 2012 at 6:33 pm

If I buy any of these bonds from the Stock Exchanges is there a reduced coupon rate? also, is there a ceiling on the amount of bonds I can hold.
On HUDCO, i see there is a limit of 5 Lakhs.

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Shiv Kukreja June 21, 2012 at 12:16 pm

Hi Anand… You’ll continue to get the same interest rate if you go for NHAI or PFC Tax Free Bonds. But the interest rate payable will get reduced once you buy IRFC or HUDCO or REC Tax Free Bonds.

There is no ceiling on the no. of bonds you can buy from the secondary markets. The limit of Rs. 5 lakhs is applicable for the Retail Investors during the initial offer period only. Like you can buy any no. of shares of Reliance Industries in the open market, in the same way you can buy any no. of these bonds from the open market.

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Anand November 6, 2012 at 12:50 am

Hi Shiv,
Are there any other Tax-Free bonds scheduled to come in the rest of the year or 2013?

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Shiv Kukreja November 6, 2012 at 11:01 am

Hi Anand… There are Rs. 60,000 crore worth of tax-free bonds expected to hit the markets this financial year. But, none of the companies has announced its dates as yet.

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Vivek August 1, 2012 at 3:20 pm

Manshu
Can you include the annual interest payout date as well? I just cant figure out that data from anywhere

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Shiv Kukreja August 1, 2012 at 6:07 pm

Hi Vivek… Please find the “Interest Payment Date” of all of tax-free bond issues in the table provided under this post:

http://www.onemint.com/2012/07/19/tax-free-bonds-mid-year-update/

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rajesh November 5, 2012 at 9:30 am

Hi One Mint Team, first of all congratulations on doing a great job.
Any information on upcoming tax-free bonds in the remaining part of 2012/2013?
Many thanks,

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Shiv Kukreja November 5, 2012 at 10:54 am

Thank you Rajesh!
There is no information as yet of any such bond issue.

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Deepak November 6, 2012 at 9:58 am

There may be some news here:
http://mobiletoi.timesofindia.com/mobile.aspx?article=yes&pageid=12&sectid=edid=&edlabel=TOIKRKO&mydateHid=01-11-2012&pubname=Times+of+India+-+Kochi&edname=&articleid=Ar01208&publabel=TOI

South indian bank is doing it. Not sure what are further details. Please post if anybody else has any more info.

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Shiv Kukreja November 6, 2012 at 10:55 am

Hi Deepak… This is a distribution tie-up between South Indian Bank and IFIN. This info does not have much significance here.

Reply

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