Category: Fixed Deposits

Another post from Suggest a Topic.

This time we’re going to cover the recently announced SBI retail bonds, and if last time was any indication these will become hot as hell when they open for subscription.

For this post I’m going to cover the features of these SBI Retail bonds, and then answer some questions leveraging what people asked last time around.

SBI Retail Bonds: Open and Close Date

I think only the open date is important in this issue because last time around the issue got over-subscribed the first day itself, and it’s quite likely that it gets over-subscribed this time again.

The open date for Tranche 1 is February 21, 2011 and close date is February 28 2011.

If you decide to buy these bonds, then I’d highly recommend doing so on February 21st itself. If you’re not able to buy them on February 21st then make sure to check how much they have been over-subscribed by since these SBI bonds are on first come first serve basis, and there might be no point in applying for them after the 21st.

Interest Rate on the SBI Retail Bonds

For retail investors these bonds will pay out 9.75% for the 10 years series, and 9.95% for the 15 years series.

10 years	15 years
9.75%	9.95%

There are banks that give you 10% for fixed deposits, but none of them allow you to lock in to that rate for this long a period. In that sense – these SBI bonds are offering quite a good deal compared to whatever is available at present.

I say at present because that’s important. When SBI came out with their retail bond issue last time around – there was a huge demand for that and it was a pretty sweet deal too. But, that was at a lower rate than the current offering, so you don’t know how interest rates are going to look like 5 years from now or 10 years from now.

Your money does get locked in with the SBI bonds since this is not like a fixed deposit that you can break at your will. If you go for the 10 years tenure then it will be redeemed at the end of 10 years.

SBI has the option of redeeming them at the end of 5 years and 10 years as well (more on that later), but they will only do so if the interest rates are lower at that point in time, so in that sense – keep in mind that you are committing to the redemption time period.

SBI Bonds will list on the stock exchange

These bonds are going to list on the stock exchange so you will have the option to sell them in the secondary market even if you can’t redeem them.

Keep in mind though that bond prices move about in the secondary market, so this is not the same as redemption because the prices will depend on the demand and supply plus the interest rates at that time.

Minimum and Maximum Application

The face value of one bond is Rs. 10,000 and that’s the minimum investment for the retail investor. The maximum application amount for the retail investor is Rs. 500,000.

Compulsorily in Dematerialized form

These bonds will not be issued in physical form, so you will need a demat account in order to apply for these bonds. Since this is a short point I’ll add that for the 3 of you who care these are unsecured bonds, but are rated AAA by CRISIL.

Can I get loans against these SBI Retail bonds?

No, you won’t be able to pledge these bonds like fixed deposits, and get loans against them. Similarly, you can’t break them before time like I said earlier.

Can NRIs apply for these bonds?

No, NRIs are not allowed to apply for these bonds.

When will the bonds start trading in the stock exchange?

You won’t have to wait for a long time for the SBI bonds to start trading on the stock exchange. If last time was any indication then the trading will start in less than a month of allotment.

What kind of listing gains can I expect?

I wish I knew because then I could make money without doing any real work, but alas that’s not to be. I’m sure there is going to be a lot of speculation around this, and the only input I can provide is that last time around the SBI retail bonds listed at a 5% premium.

Can I apply for the SBI bonds online?

No, there’s no option of applying for these bonds online – you have to necessarily apply using the physical form.

Is the interest from these bonds tax free?

I’ve had at least a couple of questions last time on this, and I think somehow the fact that the bonds are listed makes some people think that the interest is tax free or that there is no capital gains tax on it. This however, is not true – the interest is taxable, and if you make any capital gains selling the bonds then that’s liable to tax as well.

Where can I buy the SBI bonds from?

You can get the application form in a bank branch, and then fill it and submit it there. Someone told me last time that it helped to go to the bank before hand and get the forms and fill it because of the rush later on. I don’t know how true this will be for everyone, but sounds like a good idea.

What does the call option mean?

There is a call option with this bond which means that for the bond with 10 years tenure SBI has the option to redeem it after 5 years if they want to, and for the bonds with a 15 year tenure SBI has an option of redeeming it in 10 years if they want to.

Remember, this is their option – not yours. They will exercise it if they see it fit, but you can’t ask for buyback after 5 years if you want. In that sense this is different from the infrastructure bonds, which are the other bonds currently selling in the market.

I’ve tried to answer all questions I could think of, and have kept the post as simple as possible. Please feel free to ask any question that I have left out, and I’ll try to answer them, and of course there are a lot of other smart readers who answer questions these days, so you may not even need me.

Ravi V has shared this link where you can enter your IFCI infrastructure bond application number and see the allotment status. Karvy before that had come up with a link where you could download your IDFC allotment advice as well, but you can’t do that here yet.

Still, this is going to be useful for a lot of people who haven’t got any communication on their IFCI infra bonds.

Here is the link:

http://www.beetalfinancial.com/bond.aspx

Big thank you to Ravi for sharing this!

Updated on Jan 2nd 2013.

I updated my tax saver fixed deposits page today, and I thought I’d create a separate page to record some of the better paying interest rates on these tax saving FDs.

With that in mind, here is a list with some of the best interest rates on fixed deposits that are covered under Section 80C that I could find.

I’m sure there are some that I have missed, so if you know of any banks that pay well, please leave a comment or drop in an email, and I will update the list.orted List

Bank	Interest Rate
City Union Bank	9.50%
State Bank of Travancore	9.00%
IDBI Bank	9.00%
Indian Overseas Bank	9.00%
Vijaya Bank	9.00%
Bank of Baroda	9.00%
State Bank of Hyderabad	8.75%
South Indian Bank	8.75%
SBI	8.75%
Karur Vysya Bank	8.75%
Bank of Maharashtra	8.75%
J&K Bank	8.50%
Central Bank of India	8.50%
Kotak Bank	8.50%
Canara Bank	8.50%
Punjab National Bank	8.50%
ICICI Bank	8.50%
Allahabad Bank	8.50%
Axis Bank	8.25%

This is just a list of the best tax saving fixed deposits, but those are not the only instruments that offer you tax saving benefits. There are other instruments and this easy to understand graphic explains them to you.

 

Shiv – an independent financial adviser– left a comment yesterday informing me that REC infrastructure bonds are already available for purchase, and I thought I should do a post on this because a lot of people are looking for this information right now.

These bonds are issued with Section 80CCF benefits which means that they will get you reduction in your taxable salary of Rs. 20,000 over and above the Section 80C limit.

I have done a detailed post on Section 80CCF FAQs earlier, so if you’re new to this site or these bonds, it might be a good idea to check that out.

That being said, let’s take a look at some of the features specific to the REC infra bonds.

Open and Close Date

The REC 80CCF bond issue opened on January 12, 2011, and will close on March 28 2011.

Interest Rate

REC will offer two options – one with buyback facility, and the other one without a buyback facility, and the interest rates will differ on those options.

Here is how it will work out.

Options	With buyback after 5 years	Without buyback: Redeemable in 10 years
Interest Rate	8.00%	8.10%
Interest Payment	Yearly	Yearly
Payment Date	31st March every year	31st March every year
Buyback after	5/6/7/8/9 years	Not Applicable

Minimum and Maximum Investment

The bonds have a face value of Rs. 5,000 and the minimum you have to buy is two bonds, so the minimum investment you can do is Rs. 10,000.

There is no limit for the maximum, but since the main benefit of investing in infrastructure bonds is getting the tax break, and the cap on that is Rs. 20,000 – in a way that becomes the upper limit.

You can get more than 8% on your money in shorter time frames in bank fixed deposits these days.

Physical form or only Demat?

REC has an option of physical form along with the Demat option, so even if you don’t have a Demat account you can invest in these forms in the physical form.

Tax Proof for the REC Infrastructure bonds

When you buy the bond it will not be credited to your account immediately, and if you are buying it online you won’t get any documentation that shows you purchased the bond.

This has caused some troubles to people who had to submit tax proof at their work place. I’m not a tax expert but some people here have suggested that when they apply physically (and give their demat account number) – they get a receipt, which has been used for tax proof in their office. So, if possible, check with the people who do your taxes if that receipt will suffice, so that you don’t get into any trouble later on.

Credit Rating of REC

These bonds like other infra bonds before them are unsecured, but REC itself has been graded very well by the rating agencies, and is a Navratna as well.

AAA / Stable	CRISIL
CARE AAA	CARE
LAAA	ICRA
AAA (IND)	Fitch

How can you buy REC Infrastructure Bonds?

If you are interested in buying the REC infrastructure bonds, then you will have to fill up the physical form, and submit it to one of the collecting branches.

You will need documents like PAN, address proof, and Demat account proof to submit along with the application form.

This link has got the list of bank branches where you can submit the application form.

You can download the application form here.

Alternately, you can look for an independent financial adviser in your area who can assist you with it, or see if your online trading account allows you to invest in these through their platform or not.

Also read about the IDFC Infrastructure Bond Tranche 2.

Updated: May 24 2013

After I did the post on Indus Ind Bank offering 9.5% for 400 days, I received emails from readers Suresh Jain, and Vijay Dongre to tell me about a couple of other banks that are also offering good rates, so I thought I should do a small post to inform other readers about these banks that are offering high interest rates on fixed deposits.

I’ve also added to the information emailed to me by compiling a list of bank fixed deposits that are offering more than 9% right now.

Although I’m sure I would’ve missed some banks, I think this list constitutes some of the best fixed deposit rates that are currently being offered by Indian banks. If you know of any banks outside this list then please leave a comment, and I’ll update the post with your suggestions.

Some of you have asked about banks because they are safe, but there are plenty of other safe places to invest your money in India too, and you can opt for one of those instead of a bank. (Read: List of 10 Safe Investments in India)

S.No.	Bank	Tenure	Interest Rate
1	Tamil Nadu Mercantile Bank	20 month 20 days	9.50%
2	Lakshmi Vilas Bank	1 year	9.50%
3	Karur Vysya Bank	2 years to 3 years	9.50%
4	City Union Bank	2 – 5 years	9.25%
5	Yes Bank	15 months	9.25%
6	Punjab and Sind Bank	500 days	9.25%
7	Central Bank of India	555 days	9.25%
8	Dena Bank	750 days	9.25%
9	Allahabad Bank	1 year to less than 2 years	9.15%
10	South Indian Bank	1 – 3 years	9.00%
11	Bank of India	1 year to 8 years	9.00%
12	Oriental Bank of Commerce	1 years to 10 years	9.00%
13	Canara Bank	1 year to 2 years	9.00%
14	State Bank of Patiala	 555 days	9.00%
15	Indian Bank	9 months to less than 3 years	9.00%
16	Kotak Bank	700 days	9.00%
17	Andhra Bank	 1 year to 10 years	9.00%
18	Corporation Bank	1 year to 5 years	9.00%
19	IDBI Bank	500 days to 5 years	9.00%
20	Indian Overseas Bank	1  – 5 years	9.00%
21	ICICI Bank	390 days to 2 years	9.00%
22	Syndicate Bank	1 year	9.00%
23	Axis Bank	15 months to less than 5 years	8.75%
24	Dhanalaxmi Bank	200 days	8.75%
25	State Bank of Travancore	1 year to 1000 days	8.75%
26	Bank of Baroda	1 year	8.60%
27	J&K Bank	1 year – 10 years	8.50%
28	Vijaya Bank	1 year to less than 3 years	%
29	Karnataka Bank	1 year to 3 years	%
30	Federal Bank	1 – 3 years	%

As you can see these are some great rates, and the good news is that the tax saving fixed deposits have also got some great rates these days. If you haven’t done your tax saving investments yet then you can take advantage of those rates.

Fixed deposits aren’t the only thing that help you save tax – there are plenty of other instruments that help save tax and you can visit this page to understand the nuances of Section 80C tax saving investments in an easy to understand graphic.

Update: There was an error in the post where I said HDFC is offering 9.50%, but a couple of readers emailed me to let me know that the higher rate was for senior citizens only. I have corrected that, and apologize for the error. Thank you to Anil Kumar Kapila, and Rakesh Jain for their emails. Also, the list of senior citizen’s bank interest deposits didn’t include quite a few names in the above table which I have done now. Update 2: Added ICICI Bank’s 990 days interest rate for senior citizens. Update 3: Added Indian Bank on the comment of P.T Palani Update 4: Removed the list of senior citizens interest rates from this post because I’m finding it hard to keep the list current.

As I was updating my bank interest rates page, I noticed that Indus Ind Bank has raised its rates, and from what I could see they seem to be offering the best interest rate on a fixed deposit for about a year.

They are offering 9.50% annually for 400 days, which is quite good, and even the 8.50% annual that they are offering for 200 days is pretty good.

I wanted to do this post because I received a few comments asking if it makes sense to invest in the 80CCF infrastructure bonds if you don’t consider the tax benefit.

As you see  – you can get 8.50% annually for a 200 day deposit, so it doesn’t really make sense to invest in the infra bonds if you don’t want the additional tax benefit because their interest rate is about the same or lower.

The other interesting thing that I wanted to bring up is that Indus Ind also offers something called a Flexi Term Deposit.

What this means is that they allow you to treat your deposit as a cluster of Rs.1,000 units, and allow part withdrawal on it. So, if you’re making a fixed deposit of Rs. 10,000 – you can think of it in terms of buying 10 bonds of a face value of Rs. 1,000 each.

If you want to redeem part of that before the maturity, date then you have the option to do so, and they will pay you interest on that part according to the time period you kept the deposit with them.

If you choose to open a fixed deposit under this scheme – be sure to check if they impose any penalty on premature withdrawals because that’s something I didn’t see mentioned anywhere.

Update: Mr. Suresh Jain has emailed me letting me know that Indus Ind Bank charges 1% penalty on premature closures, and re-investments.

This is the second post from the Suggest a Topic page, and in this post I take a look at the different types of debt funds available to Indian investors.

1. Monthly Income Plans: I start with MIPs first because I have already written a post about them in the past, and these are funds that primarily invest in debt instruments, and try to give you a monthly income in the form of dividends. The income is not guaranteed of course, and they only pay out a dividend if they are profitable for that time period.

This type of a debt fund is for people who have a big corpus initially, and would like to generate a monthly income for them with low to moderate risk. When I wrote that last post about MIP I got an email asking if you could do a SIP in a MIP. While that rhymes together nicely, I don’t see merit in investing monthly in a product whose premise is generating a m0nthly income, so I’d avoid that.

2. Capital Protection Plans: Capital Protection Plans are debt instruments that guarantee your capital, and then invest a portion of the funds in equity in the hopes of generating excess returns. I personally don’t see any compelling reason to invest in these type of funds because you can create such a portfolio yourself fairly easily, and avoid paying the mutual fund fees that they will charge you.

3. Gilt Funds: Gilt Funds invest in government debt viz. the debt issued by Reserve Bank of India on behalf of the government. They also invest in securities issued by state governments. The investments are done in ultra safe paper because they are backed by the government itself but that doesn’t mean the Gilt Funds are risk free. They can go down in value because when interest rates rise the value of the debt goes down. So, there could be a possibility that the debt funds lose some part of their NAV also.

Gilt funds can be short term gilt funds, or long term gilt funds. The short term Gilt Funds are meant for people looking to invest their money for shorter durations of say 3 – 6 months.

4. Fixed Maturity Plans (FMPs): Fixed Maturity Plans (FMPs) are quite similar to fixed deposits in the sense that these funds are usually close ended, which saves you from interest rate risk, and even if rates move upwards the fund NAV doesn’t go down. The way the fund works is that a fund house announces a new fund offer specifying the duration of the fund say 18 months or so, and then they collect money from investors which is then invested in debt of the same duration.

These funds have become popular because of a sort of a tax advantage where interest on fixed deposits are charged at a higher tax rate than dividends from FMPs for individuals who are in the higher tax bracket.

The risk of investing in FMPs is that they might invest the money in lower quality debt, and then during times such as the last crisis might come under pressure, and in that sense your capital is not really assured as it is in the case of say a fixed deposit with SBI.

5. Liquid Funds: Liquid Funds are funds that are used by investors for extremely short time durations, and in most cases instead of a savings account. The current savings account interest rate is 3.5% per annum, whereas funds like the SBI Magnum Cash Liquid Float, LIC MF Liquid Fund and JM High Liquidity Fund have returned over 5% since last year. These funds are not meant to keep money in for longer durations because these same funds return in the range of 6.5% when you look at their returns for the past 3 years.

6. Floating Rate Funds: Floating rate funds are funds that invest in predominantly floating rate debt instruments, and can invest in government and corporate securities.

You can have a short term floating rate fund, or a long term floating rate fund. A look at the top floater plans on the Moneycontrol page shows that the 1 year return for the funds that performed in the last year range in 5.3 to 6.1% area, and the 3 year returns range between 6.9% to 7.9%.

Other long term and short term funds: Outside of the categories mentioned above there are debt funds that target long term debt, or short term debt, but may not be strictly a liquid fund, or a floating rate fund. If you look at a bond fund, and by its description its not clear how it fits in the earlier categories then you will have to dig in deeper into the fact sheet or information document or just the returns over the years to see how it did, and get a feel for the nature of the fund. An example would be the SBI Dynamic Bond fund – you will have to look at the information document to dig deeper and see what the fund is all about as the name alone doesn’t indicate what this is all about.

I have tried to cover all the major categories, and if you think that I have left out something then please leave a note, and I will update the post with that information.

Next week, I am going to make a comparison between the debt funds and fixed and savings deposits.

I got this email about the IFCI bonds, and I thought I’d paste my response here as well.

Q.

are these bonds same as shares
can we sell it on market or we have to sell it to the company itself
what is the locking period

A.

No, these bonds are not same as shares. Share prices go up and down every day, and can be quite volatile. Also, there is no guarantee that you will get a certain amount back at the end of the tenure.

These bonds will be locked in for 5 years, so you will not be able to trade them for that much time. They will then be listed on an exchange but will not be as volatile as regular stocks. They will pay you an interest, and also save tax which is not something stocks do. Think of bonds more like a fixed deposit than a stock.

Feel free to weigh in on the response, and add your comments!

Also read about the REC Infrastructure bonds here or the IDFC Infrastructure Bonds Tranche 2 here.

Update: There has been a change in terms, and you can now invest in these bonds in physical form also. Here is the link to relevant IFCI page.

The issue has been extended till January 12 2011

The IFCI Infrastructure bonds are the latest infrastructure bonds to be issued with the 80CCF benefits, and are the second tranche from IFCI, which issued them earlier this year as well.

The IFCI bonds are issued with section 80CCF benefits which means that they will get you a tax benefit of reducing your taxable income over and above the Rs. 100,000 under Section 80C with a cap of Rs.20,000.

The issue has been rated “BWR AA” by “BRICKWORK RATINGS INDIA PVT LIMITED” which means that they are rated as instruments with high credit quality.

Here are some other details about them.

IFCI Infra Bond Options

There are 4 series that you can choose from with a combination of getting interest paid annually, cumulatively, and having a buyback or not.

Here are the details of the 4 series.

Options	I Buyback & Non – Cumulative	II Buyback & Cumulative	III Non Buyback & Non – Cumulative	IV Non – Buyback & Cumulative
Face Value	Rs. 5,000	Rs. 5,000	Rs. 5,000	Rs. 5,000
Buy Back Option	Yes	Yes	No	No
Coupon	8.00% per annum	8.00% compounded annually	8.25%	8.25% to be compounded annually
Redemption Amount	Rs. 5.000	Rs. 10,795	Rs. 5,000	Rs. 11,047
Buyback allowed after	5 years	5 years	NA	NA

As you probably noticed IFCI didn’t show yields in the same manner as L&T and IDFC, where they took the tax benefits based on various slabs and showed yields at different tax slabs and interest payments. This is probably a good idea given the various limitations of the way those yields were calculated.

How does the IFCI infrastructure bond buyback option work?

At the time of selecting a series you have to select either series 1 or series 2, which allow the buyback after 5 years lock in period. To exercise the buyback you have to write to IFCI to request it, and this has to be done in the month of November for the year when you want to exercise the buyback.

Open and Close Date of the IFCI Infra Bond

Opening date of the issue: November 16th, 2010 and Closing date of the Issue: December 31st ,2010. They can close earlier as well if their entire demand is met.

Is a Demat account necessary to apply for the IFCI Infra Bond?

Yes, right now it is necessary to have a demat account to apply for these bonds as they won’t be issued in physical format. Even the IDFC bonds started out as Demat only, and were later on changed to allow physical forms also. The target sum to be raised by IFCI bonds are much lesser than the IDFC ones, so they might not feel the need to change and include the physical format as well.

Will tax be deducted at source from the interest payment?

These IFCI 80CCF bonds will not attract TDS, however the interest itself is taxable at your hands. So, the bonds don’t attract TDS, but it doesn’t mean they are tax free.

Will the bonds list in a stock exchange?

Yes, IFCI plans to list these bonds on the Bombay Stock Exchange (BSE), but from reading the information memorandum it seems to me that you can only sell these bonds after the lock in period of 5 years.

Can NRIs invest in the IFCI Infrastructure bonds?

NRI customers are not eligible to apply for the issue.

What if you have already bought another infrastructure bond?

If you have already bought another infrastructure bond, and exhausted the limit of Rs. 20,000 then you won’t get any further tax benefit by buying this bond. There are also several banks that offer 8% interest for terms less than 5 years, so you won’t get much value out of locking your money in this instrument for 5 years.

How can you buy the IFCI infrastructure bonds?

You can buy these bonds through your broker like ICICI Direct, or can submit an application form in one of the bank branches that are accepting them. The information memorandum lists down a large number of HDFC bank branches so you can go to one near your house, and they might be selling the bonds or can at least tell you where you will get them.

Should you wait for another issue?

This issue is 50 basis points, or half a percentage higher than similar L&T bonds issued earlier, and reader Amit Khandelia actually left a comment about LIC coming up with a future issue, and possibly even offering term insurance free with their offer.

IDFC has also indicated interest in coming up with a future issue, so they might come up with another issue too.

The advantage with waiting is that you may get a slightly higher interest rate, maybe half a percentage or one percentage more, but as I said earlier if you’re able to wait and get a bond which offers a percentage higher, and you invest the maximum Rs. 20,000 in it – that means an additional 200 bucks extra in a year; what is that worth to you? How many hours of Googling and speculating is it really worth?

The advantage of getting it now is that you can get this one thing done with, and have plenty of time to receive the certificates for tax proofs or whatever else you need.

This is a personal decision really, but something worth keeping in mind the next time you speculate on whether you should wait or go ahead with it.

Please leave a comment if you have any questions or observations.

This calendar is for last year’s bonds, and you need to go here to look at the 2011 80CCF Infrastructure Bond Calendar.

A lot of you are interested in the next infrastructure bond issue, which helps save tax under section 80CCF, and since I didn’t find any consolidated information anywhere I thought I’d create this post with a list of the infrastructure bond issues that are expected to come out in the market in the next few months.

This was also triggered by the fact that ICICI Direct has started offering the IFCI Infrastructure Bonds series – II already, and it looks like these bonds will be available till December 31^st 2010.

I couldn’t find their prospectus, and the page on their website that should hold details about the issue is actually blank! So I don’t have a lot more details right now, but will write a post once I get more details.

Here are the bond issues that I’m aware of.

S.No.	Name of the issuer	Expected Time Frame
1	REC	January 12th 2011 – March 31st 2011
2	IDFC	Issue re-opens on January 17th 2011
3	IIFCL	Feb 4 2011 – Mar 4 2011
4	L&T Infrastructure Bonds	Second tranche in February-
5	Power Finance Corporation (PFC)
6	IFCI	November 16 2010 – January 12th 2011
7	LIC	There are reports that this issue may not happen this year.

If you know of any other please leave a comment and I’ll update the post.