HUDCO Tax Free Bonds Features

by Manshu on January 2, 2013

in Fixed Deposits

HUDCO is the latest company to announce its tax free bonds issue, and there will be two series – one with a tenor of 10 years, and another one with the tenor of 15 years.

HUDCO Tax Free Bonds Open and Close Date

The issue is going to open on the January 9 2013, and will close on January 22nd 2013, and you can apply for these bonds in the Demat or the physical format.

The bonds will list on the NSE so if you wanted to trade them then you need to have them in the Dematerialized format.

Terms of the HUDCO Tax Free Bond Issue

These bonds have similar terms to the ones issued earlier by IIFCL, PFC and REC and the table below lists down some of the main ones.

HUDCO Tax FREE Bonds Options

Series 1

Series 2

Tenor 10 years

15 years

Interest Rate – Retail Investors 7.84%

8.01%

Interest Rate – Other Investors 7.34%

7.51%

Face Value Rs. 1,000

Rs. 1,000

Minimum Investment Rs. 5,000 Rs. 5,000

Can NRIs invest in these bonds?

Like the IIFCL issue, NRIs can invest as retail investors or in the other category for the HUDCO tax free bonds.

Credit Rating of the Issue

This issue has got a slightly lower rating than the other tax free bonds as CARE has rated this issue AA+ whereas it had rated the other three issuers as CARE AAA.

How much of a difference does this make? I honestly can’t give this much importance. As I’ve said several times earlier, the best way to diversify risk from your investments is to spread them across different instruments and it is very hard for even experts and auditors to predict trouble, let alone individual investors.

HUDCO is giving a slightly higher rate than other issuers for the same bonds, and there is not much more you can expect from these bonds where the interest rate is capped as it is.

Do these bonds have a step down feature?

Step down feature is where the interest rate on the bonds bought by retail investors come down to the other categories if they are bought from the stock market. All bonds that have been issued this year have the step down feature including this one.

Who is a retail investor?

Resident individuals, NRIs and HUFs who invest less than Rs. 10 lakhs in this issue will come under Category IV – Retail Investors, and will get an additional rate of interest of 0.50%.

Conclusion

As I’ve said earlier, these tax free bonds are a good option for someone in the 20% or 30% tax bracket and they are quite close in their terms of issue, so it doesn’t really matter which one you choose from. Ideally you should select two or three different ones so if something does go wrong with a particular company, you don’t have all your money invested in it.

It is likely that the interest rates are going to come down in the next month or so and if you wanted to invest in these bonds then you should look to choose one and put your money in them quickly.

Click here to download the application form

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