This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in
With rising inflation and high fiscal deficit here in India, yields on government securities are also rising and high G-Sec yields bring along some good investment opportunities for the prospective tax-free bond investors. Many of the investors, who could not invest in the previous five tax-free bond issues of REC, HUDCO, IIFCL, PFC and NHPC, have been eagerly waiting for the new issues to get launched.
A few days back Ramadas asked me if I know when the next tax free bond issue will hit the market. Here is what he had to say:
Ramadas November 19, 2013 at 7:16 am
Hi Shiv
Do you know when next tax free bond issue will hit the market? I see IRFC has already filed prospectus with SEBI. NTPC and NHB are in the news. Any confirmed dates when next tax free bonds will be issued?
I have received many such queries in the past 15-20 days as many people have been asking this question on different posts.
As none of the companies has filed the final prospectus for its issue, nobody knows the exact opening dates of the upcoming tax free bond issues. But, with whatever information I have and based on the dates of filing of their draft shelf prospectus, here is the list of tax free bond issues which are going to hit the streets in the next one month or so.
IIFCL Issue – Last week of November – IIFCL announced earlier this month that it would launch the second tranche of its tax free bonds in the third or the fourth week of November. IIFCL has already raised around Rs. 4,200 crore out of Rs. 10,000 crore it has been allowed to raise from tax-free bonds this financial year.
HUDCO Issue – Last week of November – I have been told by a close associate that HUDCO is also planning to launch the second tranche of its tax-free bonds issue in the next 3-5 days time. The company could raise around Rs. 2,400 crore in the first tranche which got closed on October 14. HUDCO still has the authority to raise another Rs. 2,400 crore.
IRFC Issue – First week of December – IRFC filed the draft shelf prospectus with SEBI to raise Rs. 10,000 crore from its tax-free bonds issues on November 11. As observed in the past, it takes around 15-20 days for a company to launch its public issue from the date it files the draft shelf prospectus.
Also, as Shashwat shared it yesterday, an official of IRFC has told Deccan Herald that it is planning to launch its public issue in December. Taking a cue from it, I think IRFC issue should hit the streets in the first week of December.
NTPC Issue – First week of December – Just a few days after IRFC did it, NTPC also filed the draft shelf prospectus on November 15 to raise Rs. 1,750 crore from tax-free bonds. So, I expect NTPC issue also to hit either in the first week or the second week of December.
NHB Issue – Second week of December – Though NHB raised Rs. 900 crore from these bonds through private placement in August this year, it has taken more than usual time to do it through its public issue. But, now they have officially announced to launch its issue in the second week of December. I hope they do not delay it further.
NHAI Issue – Second half of December – Last month, NHAI announced its plan to raise funds through these bonds sometime in December. But, as the company has still not filed its draft shelf prospectus as yet, I do not see the issue hitting the streets before second half of December.
November was a dry month as far as tax free bond issues are concerned. But, if all these issues get launched sometime next month, it would really create a glut for these bonds in the market.
Thanks to the high interest rates scenario, these companies would find it less difficult to attract investors’ money to get invested in these bonds.
I’ll update this post as and when I have any information about any new issue getting launched and the coupon rates it is going to carry. If any of you get any kind of information, please share it here so that all of us benefit out of it.
Dear Shiv
I have a doubt, we recently invested 2 lakh each in HUDCO & IIFC for 20yrs, Now i can invest only 6 lakhs more in coming IRFC bond issue or I can invest even 10 lakh. IS THIS 10 Lakh limit for each bond or sum of all bonds invested in a year. Will appreciate your reply as i am clueless on this.
Hi Kunal,
You can invest even Rs. 10 lakhs in the IRFC issue. Rs. 10 lakh limit is applicable to each issue and not sum of all issues.
To add to that, you can invest up to 10lakhs in each tranche, when there are multiple tranches of the same company/Org and still be considered a retail investor. This point was also clarified by Shiv earlier.
That is correct !!
Dear Shiv & Kalyan
Thank you very much for clearing away the doubts. There is just one more doubt and i don’t know if it can be asked in this thread. I am NRI and wife is in India as Resident Indian. I want to further invest more in tax free bonds through my wife. So, if i transfer money from my NRE account to her resident account and she is doing tax free bond, is there any issue in it…TAX wise??? Or is it fine??
Sorry Kunal, I won’t be able to take such personalized queries here.
I hold 10 REC N2 bonds@930; FV 1000 Rs for last 2 weeks, I see the Next IP Date as 1 Dec 2013, does that mean i will get the interest even if i sell the bond now?
current price of the bond is @ 900 which means i do not have to pay any short term capital gain?
Please clarify….
http://www.nseindia.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?symbol=RECLTD&series=N2
Appreciate your effort Shiv. Thanks
If you’ve bought these bonds on or after November 13th, you’ll not get any interest, as these bonds already got “Ex-Interest” after that.
Yes, you need not pay any STCG tax if you sell these bonds @ Rs. 900, bought @ Rs. 930.
Thanks for the appreciation !! 🙂
IIFCL Bonds on 9th December – http://www.thehindubusinessline.com/economy/iifcl-woos-retail-investors-with-higher-interest-rates/article5414996.ece
10 years – 8.66
15 years – 8.73
20 years – 8.91
Thanks Aditya for this info !!
Great, So similar rates as the current issues. Probably these are the highest rates we will see for sometime as I don’t expect the coming issues to have better rates than this.
Hi Shiv,
Can one sell the bond in secondary market physical form with same amount of ease/liquidity as DEMAT form?
Thanks
Hi Abhinav,
It is as difficult to sell these bonds in physical form as it is easy to sell them in demat form. You’ll not be able to find an interested buyer for these bonds in physical form very easily and the transfer process is also very difficult.
Hi Shiv,
RBI has decided to launch Inflation Indexed National Savings Securities-Cumulative (IINSS-C) for retail investors in the second half of December 2013. It would be great if we can have your input on this.
Thanks
Hi Ikjot,
I haven’t been able to analyse the details of IINSS. I’ll cover it as soon as I am able to do that.
Hi Shiv,
Can you please provide some perspective with regards to HUDCO vs NTPC issues ? Thanks in advance
Hi Aditya, I’ll cover both these issues within a couple of days time.
Dear Shiv,
I have a doubt on application. I have 2 Demat accounts where in 1 I am first owner and my wife is second and in 2nd one she is the first owner. While applying, can we apply in both demat account with a limit of 10 each as retail customer?
Yes George, you can apply Rs. 10 lakh worth of bonds with each of the demat accounts. You’ll be the first applicant in the first application and your wife will be first applicant in the second application.
Hi Shiv,
Is it advisable to sell last years bonds of PFC and IRFC which offered 7.38% to retail investor and invest that amount in coming issues. I understand that the market rate of these bonds are trading much lower to their face value, for PFC it is 957 while IRFC it is 925 as on today.
Regards,
Ashish A
Hi,
I was looking for write up from Shiv on the NTPC issue. My feeling is that this is the best Tax free bond considering the background of the company. The capitalization of equity , revenue and Profit of this company is good. When compared to NHPC also NTPC seems to be a better bet. Regarding Ashish’s question on selling the old bond and buying the new. One will have to really do some calculations. Selling Bond with FV of 1000 for 925 and buying new bond will not be sensible if you calculate the difference between the new coupon rate and discounted coupon rate of the old bond. The old bond price already factored the difference. You will be paying brokerage on top of it and this will show a loss rather than any kind of gain. For long term investors it is better to hold the old ones and buy the new one if there is fund. The average return of the portfolio will improve.
Hi Ashish,
If I am able to do a relevant practical comparison, I’ll try to do a post on the same.
Now the question is should you go for HUDCO or NTPC . HUDCO has better rate but lower ratings and will be listed on BSE only. I’m sure Shiv would be able to shed more light on this once complete details emerge.
Hi Ikjot,
I was out of town to attend a couple of marriages. I’ll cover both these issues very soon.
Thanks for your reply and Welcome Back . Eagerly waiting for your posts on both the issues.
Got this from a reliable source
Tax free bonds update
HUDCO2 opening on 2 Dec.
Rates:
10 yr 8.76%
15 yr 8.83%
20 yr 9.01%
NTPC opening on 3 Dec.
10 yr 8.66%
15 yr 8.73%
20 yr 8.91%
Found some details for HUDCO here – http://www.hudco.org/Site/FormTemplete/FrmtaxfreebondProspectus.aspx
Hi Shiv – Any news on the IRFC front ?
Hi Aditya,
No news on IRFC front as yet.
Yeah seems right, HUDCO opening on 2nd December with rates 10 yr 8.76%, 15 yr 8.83%, 20 yr 9.01% and Interest payments on 31st December every year.
This year I have already invested in REC and PFC tax free bonds. should iI wait for IRFC or NHAI tax free bonds or invest in NTPC?
Hi RS,
IRFC bonds issue is expected to get launched quite soon. You can wait for the issue to get launched, compare the interest rates with that of NTPC and then take a decision. NHAI is yet to file its draft shelf prospectus, so it will take a while for the company to announce its rates.
NTPC tax-free bond issue to open on December 3 – http://www.business-standard.com/article/companies/ntpc-tax-free-bond-issue-to-open-on-december-3-113112700356_1.html
Where can we know the coupon rates ?
For retail , 10 year bonds are at 8.66% , 15 year bond at 8.73% and 20 year bond at 8.91% is what i heard. Not much different than what NHPC and PFC offered.
Thanks Ramadas. Yes those rates look exactly the same !!!
I read State bank is planning to issue bonds. I couldn’t find more details about this. Will this be available for retail invenstor? Do you have more information about term / interest rate / taxable or non taxable etc? Please let me know. Thanks,
No details out as yet. But, I think it would be taxable and likely to be issued in the last quarter of the current FY.
Hi Shiv
I just heard from one of my sources that NTPC tax free bonds is opening on Dec-3 and will close on Dec-16. Looks like retail is only getting 8.91% for 20 years as max interest.
Regards
Ramadas
Hi Ramadas,
Even I’ve heard the same. HUDCO has also pushed it to the first week of December.
Also, I think coupon rate of HUDCO bonds should cross 9% mark as it is AA+ rated. 10-year coupon rates will still be higher than the previous issues as the average 10-year G-Sec yield has jumped substantially. Let’s see.
Whats the degree of safety in Hudco ? Should AA+ and AAA matter substantially ?
There is enough safety with all these tax-free bonds as all these are issued by PSUs. With ‘AA+’ or ‘AAA’ ratings, you can’t really measure the degree of safety. Personally, I think there is only a marginal difference between HUDCO’s ‘AA+’ issue and other PSUs’ ‘AAA’ issues, but then if two issues are offering similar rates, everybody would prefer the ‘AAA’ one with good financial standing.
Hi Shiv,
Now that the coupon rates are out, in your opinion how much of a factor will AA+ against AAA be ?
I am looking to hold the bonds till maturity.
Hi Aditya,
I think it doesn’t matter much, both issues are equally good. It is difficult to conclude which issue stands superior.
Thank you shiv!!
You are welcome Jitendra !!
Very informative and useful post Shiv. Your posts are always to the point and educate us a lot 🙂
I had 3 questions :
1. Does it make sense to wait for the 2nd half of december for issues like NHB and NHAI, because maybe the coupon rates will be higher to attract investors after the offers in the first half ?
2. Where do you see the G-Sec rates heading at the time of these issues hitting the market?
3. Is the RBI bond auctions this week delaying the tax-free bond issues ?
Thanks Aditya for you kind words !!
1. Nobody knows what the coupon rates will be in the 2nd half of December, so I don’t know when one should invest in these bonds to get higher rate of interest. With PFC & NHPC bonds, I thought that their rate of interest would be the highest this financial year, but then I was wrong in my assessment. Let the issues starts pouring in, only then one can take calculated calls.
2. Similar response as ‘1’ above.
3. I don’t know, but I don’t think that the RBI bond auctions this week have anything to do with the tax-free bond issues getting launched or getting delayed.
Hi Shiv,
Bought 999 units of IIFCL & HUDCO. Believe this entailed me as a retail investor. If the second tranche rates are higher, I am planning to invest more in these issues. Will I still be considered as a retail investor, as the total will exceed 10 lakhs when investments in both the tranches of the same issuer are combined ? Please advise.
Hi Kalyan,
Rs. 10 lakh limit is for each issue and not for all the issues combined. Even if you had invested Rs. 20 lakh in IIFCL and HUDCO issues (Rs. 10 lakh * 2 issues), then also you would have been considered as a retail investor. With Rs. 10 lakh getting invested in each issue, you can invest Rs. 1 crore in 10 different issues and still get higher rate of interest as a retail investor.
Thank you, Shiv. Guess my question was not very clear. Please let me try again. I invested 10 lakhs in earlier tranche of IIFCL. If I invest another 10 lakhs in the upcoming tranche of IIFCL, totaling an investment of 20 lakhs in IIFCL issue, will I still be considered a retail investor.
Greatly appreciate your guidance..
Yes Kalyan, even if you invest Rs. 20 lakhs with IIFCL in two different tranches of IIFCL, then also you will be considered as a retail investor and get a higher rate of interest in both the issues.
Thanks a lot, Shiv, for answering my questions. This cleared my doubts.
You are welcome Kalyan !!
Thanks Shiv, I had subscribed to the previous issue of HUDCO, IIFCL and REC 15 yrs and 20 yrs bonds. I had some additional cash that I wanted to save in fixed income deposits for a regular income. The coupon rate of the new issue is key, close to 9% or more would make me think. Can’t wait to know the Coupon Rates?. REC offered lower rates than HUDCO and IIFCL, but I kept investing equal amont in each of them. Would an increase rate of 0.5 % in new issue worth selling previous holding?
If the coupon rates are 0.50% higher than REC’s 8.71%, then I think it is better to sell REC bonds and invest the proceeds in the new issues.
If the interests rates on second tranche is attractive, is it advisable to sell the holding of first tranche and buy them on second trance? Pls advice.
Hi Nagendra,
It depends on the coupon rate of the issue you subscribed for, coupon rate of the new issue, market rate of the bond you subscribed for and your personal investment requirement whether you should do that or not.
Very informative post. Thanks Shiv.
You are welcome Ikjot!