Category: Investments

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

SB on July 1 asked me to do a post on investment options post Brexit. Here is what he had to say:

SB July 1, 2016 at 5:17 PM

Hi Shiv, can you provide your expert comments /article on the following topics: 1) Investments advice in the current circumstances / post BREXIT era. 2) Real estate investments pros and cons post budget 2016.

Brexit has left most of us clueless about the future of the world economy. It is very difficult for somebody like me to guesstimate the impact of Brexit on any of India’s macroeconomic factors. But, with the clues I have got from whatever relevant I have observed so far, I would like to share my views about investment options we can consider in the present scenario. Here is what I think about such investment options.

Fixed Income – Tax-Free Bonds, Debt Mutual Funds – Post Brexit, there is a panic in the bond markets the world over. Bond yields globally are falling like there is some kind of financial crisis. While German bond yield has moved into negative territory, bond yields in the U.S., the U.K., France, Switzerland, Denmark and Sweden, all have fallen to fresh historical lows.

All this had a negligible impact on the Indian bond yields so far. But, going forward, I think bond yields here in India should also fall to a range of 7% to 7.25% soon. This should result in a jump in bond prices and NAVs of debt mutual funds. So, it is still a good time to invest in debt mutual funds and tax-free bonds. But, the investors should be cautious on 2 fronts – monsoon rains & inflation. Disappointment with any of these two factors could again put pressure on the bond yields and it could jump to 7.60% to 7.75%.

Real Estate – Most major cities in India have seen a correction in real estate prices in the last 2-3 years. Delhi-NCR region has got 20-40% correction in prices from their peak levels. While there are a large number of reasons for this price correction and lack of demand, I would call it a sentimental U-turn to be the primary reason which has resulted in buyers turning their backs to make fresh investments in real estate these days.

I personally think that there was and there still is a requirement of a sharp correction in real estate prices across major Indian cities. Property prices had touched sky high during 2012-2014 period and the bubble had to burst sooner or later. Though we have seen a healthy correction in property prices in the last 1-2 years, I think they are still ruling at an unreasonably high levels. If we need a healthy growth in this sector and want sale-purchase transactions to resume again, we need the sellers to lower down their expectations to fairly reasonable levels and try to engage good real estate agents in our transactions.

I would advise people not to buy flats or builder floors for at least 1-2 years more as I think there is still a good scope of property prices falling further from here. If you still want to invest, you should try buying a piece of land after negotiating hard with the seller and then get it constructed on your own.

Invest in Construction/Renovation – As mentioned above, I think this is one of the best times to get your home renovated, get one or two rooms added to it or get it constructed if there is a vacant piece of land you have. Global commodity prices are under pressure due to a slowdown in China and a big uncertainty over macroeconomic impact of Brexit. This has resulted in a fall in prices of some of the key raw materials required to get your home constructed or renovated.

So, if you have been planning to get your home constructed or renovated, then this might be one of the best times to do it.

Gold – Nobody knows what will be the ultimate outcome of Brexit. But, everybody is certain that it has resulted in a huge uncertainty over its macroeconomic impacts. Whenever there is an economic uncertainty, gold prices start moving higher and the same has been the outcome this time as well. Gold prices have jumped to their highest levels this year and analysts are expecting a further 5-10% jump in the rest of this year.

But, I have a different view here. I think Gold prices should fall in the months to come. Sentimental shift towards gold should be short lived and I think investors should take this opportunity to cash in such gains.

Direct Equity & Equity Mutual Funds – Had you asked any of the analysts in the morning session of June 24 to guess the NSE Nifty levels of July 5, I am sure most of the analysts would have predicted it to go down to 7200-7800. But, it stands closed at 8,335.95 as of tuesday, a level which is actually higher than the Nifty closing of 8,270.45 as of Brexit voting day.

There are three primary reasons behind it – negligible impact of Brexit on the Indian economy, healthy monsoon rains in the last 10-15 days and hopes of GST getting passed in the Monsoon session of Parliament beginning July 18. I think all these are valid reasons for our markets to move up and we should remain cautiously optimistic going forward as well. Though markets may correct in the immediate short term, I think Indian markets should be up from these levels from 6-12 months perspective and substantially higher in 3-5 years from now.

I think equity investment should outperform any other asset class from an investment perspective of 2-5 years and that is one of the reasons why Indian markets recovered very sharply post Brexit outcome. Risk-averse investors should take the SIP route to build their equity portfolios, passive investors should make lump sum investments in 3-4 installments whenever there is a quick correction in the markets due to any reason and active investors should invest in fundamentally sound businesses with a medium to long term horizon.

Till the time you take any of your investment decisions, you should keep your ideal funds in a liquid fund or a fixed deposit.

Please share your thoughts about any of the investment options you think makes sense in the present scenario.

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

Tax-Free Bonds issued last financial year have all been allotted by now and as many of you wanted to get their basic details, like allotment date, maturity date, interest payment date, BSE Code, NSE Code etc. all at one place, here you have the post covering all such details required. The table pasted below also carries the coupon rates applicable to the retail investors as well as non-retail investors.

Tax-Free Bonds issued during Financial Year 2015-16

Bonds listed on the National Stock Exchange – NSE Link

Bonds listed on the Bombay Stock Exchange – BSE Link

These BSE and NSE links carry all the bonds, tax-free as well as taxable, and non-convertible debentures (NCDs) which get traded on these exchanges on a regular basis. NTPC, REC, PFC, IRFC, NHAI, IREDA, HUDCO and NABARD were the eight companies which issued these tax-free bonds during the previous financial year.

If you require any other info regarding these bonds or have any suggestion to improve this table, please share it here.

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

Last Year’s Post – Post Office Small Saving Schemes – FY 2015-16 Interest Rates – PPF @ 8.70% & Sukanya Samriddhi Yojana @ 9.20%

In a move which could disappoint many small savers here in India, Finance Ministry today decided to reduce interest rates on many of its small saving schemes, including Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), National Savings Certificate (NSC) and Senior Citizen Savings Scheme (SCSS) among others. These rates will be effective April 1, 2016 and will be subject to a quarterly revision based on a new formula to determine these rates.

Here you have the table having all the small saving schemes with their applicable interest rates and tax benefits for the next financial year 2016-17:

Public Provident Fund (PPF) – Rate Cut from 8.7% to 8.1% – There has been a significant cut in the interest rate offered by PPF, India’s most popular small savings scheme. PPF will earn you 8.10% for the next financial year as compared to 8.7% for the current financial year. However, interest rate on PPF continues to remain tax-exempt on maturity and investment up to Rs. 1,50,000 will keep getting exemption under section 80C.

Sukanya Samriddhi Yojana (SSY) – Rate Cut from 9.2% to 8.6% – Government’s pet scheme for girl child, Sukanya Samriddhi Yojana, has seen a rate cut to 8.60% from its present rate of 9.20%. But, there is still a gap of 0.50% between this scheme and PPF, which would likely keep its popularity intact.

Interest earned on Sukanya Samriddhi Yojana is also tax-exempt on maturity and investment up to Rs. 1,50,000 will keep getting exemption under section 80C.

Senior Citizens Savings Scheme (SCSS) – Rate Cut from 9.3% to 8.6% – Senior citizens will also feel disappointed as the interest rate on Senior Citizen Savings Scheme has also been reduced to 8.60% from 9.30% earlier. The interest earned on this scheme is taxable and subject to TDS as well. But, the investment made gets you a deduction of up to Rs. 1,50,000 under section 80C.

Post Office Monthly Income Scheme (POMIS) – Rate Cut from 8.4% to 7.8% – Post Office Monthly Income Scheme will also have a steep cut in interest rate from an earlier 8.40% to 7.80% effective April 1. Following this rate cut, Post Office MIS will go out of favour with many of the investors.

National Savings Certificates (NSCs) – Rate Cut from 8.5% to 8.1% – Effective December 20, 2015, the government stopped issuing 10-year NSCs. Now even 5-year NSCs will have a rate cut, from 8.50% to 8.10%. Your investment in NSCs will keep giving you tax exemption under section 80C.

Kisan Vikas Patra (KVP) – Tenure Raised from 100 Months to 110 Months – Your investment in KVP was promised to get doubled in 100 months earlier. But, from April 1, you’ll have to wait for 10 months more to get the same benefits. Effectively, this scheme will earn you 7.85% now.

Impact of Rate Rationalisation on Small Savers, Borrowers and Indian Economy

Though the government would be criticised badly for this move and the opposition parties would try to take maximum benefit out of small savers’ emotions, I would term it as one of the best moves by the Modi Government. Why am I saying this? This move will send the right signals to the global investors as well as to the Reserve Bank of India (RBI) that the government is serious about removing anomalies existent in our systems and also meeting its fiscal deficit target of 3.5%. This move, along with an expected rate cut by the RBI, is going to put more pressure on the lenders to cut lending rates in the system. It will also reduce the borrowing costs of the government, as well as many of the corporates which are currently burdened with high debt in their books.

CPI Inflation, which matters to you and me the most and was ruling in double digits during the UPA tenure, has come down to 5.18% in February 2016. WPI Inflation, which measures wholesale prices of goods and services, has been ruling in the negative zone for a very long time now. This fall in inflation is a result of a slump in the global commodity prices and crude oil prices.

Small savers need to understand that interest rates on deposits and other investments have also come down in the last 2-3 years. During FY 2013-14, our favourite ‘AAA’ rated tax-free bonds carried as high as 9.01% rate of interest. These same ‘AAA’ rated tax-free bonds carried a maximum coupon of 7.69% in the current financial year. So, effectively a fall of 1.32%.

If you compare this fall of 1.32% with a 0.60% reduction in PPF’s rate of interest or 0.40% in NSC’s rate of interest, I think the cut is truly justified. Rest I think it is very difficult to keep everyone happy in the country and at the same time, carry out economic reforms for an overall development.

Ahead of polls in five states in April-May, I would call it a truly bold move by the government. This act of rationalising interest rates will benefit the borrowers immensely, which in turn will create a right balance in the economy.

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

2016 so far has seen a good amount of volatility in all the major financial markets in the world. The main cause of this volatility has been China. After having many years of high GDP growth, Chinese economy is taking a breather. How long this slowdown would last, it is something which only God can answer. In these uncertain times, risk averse investors want safety of their hard earned money and tax efficiency of their investments. Tax Free Bonds fulfil both of these requirements.

To satisfy our hunger for tax-free bonds, IRFC will join the company of NABARD from Thursday, March 10th. The issue will remain open for just 3 days to get closed on March 14. This is the shortest period of time a company has decided to keep its issue open even before it actually opens. It seems the merchant bankers are confident enough to get the required subscription numbers within a day or two, and we all know that they are right in their calculations.

Here are the salient features of IRFC Tranche II of Tax Free Bonds:

Size of the Issue – Indian Railways has been spending a huge amount on expanding its network and upgrading its existing infrastructure. IRFC is one of the sources through which Indian Railways gets its required funds for such high expenditure. IRFC has already raised Rs. 7,050 crore in the current financial year by issuing these tax-free bonds. To partly meet its funds requirements, IRFC will raise another Rs. 2,450 crore in this issue.

Rating of the Issue – CRISIL, ICRA and CARE have assigned ‘AAA’ rating to this issue and consider it to be the safest from timely payment of its debt obligations, including interest and principal investment. Moreover, these bonds are ‘Secured’ in nature and certain fixed assets of the company will be charged equivalent to the outstanding amount of the bonds.

Coupon Rates on Offer – IRFC is offering yearly interest rate of 7.29% for its 10-year option and 7.64% for the 15-year option to the retail investors investing less than or equal to Rs. 10 lakh. These rates exactly match the rates offered by NABARD in its issue which is getting launched today.

For the non-retail investors, coupon rates will be lower by 25 basis points (or 0.25%) for the 10-year option at 7.04% and 29 basis points (or 0.29%) for the 15-year option at 7.35%.

NRI/FPI/QFI Investment Allowed – This issue will try to quench the thirst of some Non-Resident Indians (NRIs), Foreign Portfolio Investors (FPIs) and Qualified Foreign Investors (QFIs) as they have been allowed to invest in this issue either on a repatriation basis or a non-repatriation basis.

Investor Categories & Allocation Ratio – As compared to the earlier issues, this issue has a higher percentage allocation of 60% for the retail investors and as compared to the NABARD issue, a slightly higher percentage allocation of 15% for the high networth investors.

As always, the investors have been classified in the following four categories and each category will have certain percentage of the issue size reserved during the allocation process:

Category I – Qualified Institutional Bidders (QIBs) – 10% of the issue is reserved i.e. Rs. 245 crore

Category II – Non-Institutional Investors (NIIs) – 15% of the issue is reserved i.e. Rs. 367.50 crore

Category III – High Net Worth Individuals including HUFs – 15% of the issue is reserved i.e. Rs. 367.50 crore

Category IV – Resident Indian Individuals including HUFs – 60% of the issue is reserved i.e. Rs. 1,470 crore

Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first come first served (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchanges.

Listing & Allotment – IRFC has decided to get these bonds listed on both the stock exchanges i.e. on the National Stock Exchange (NSE) as well as on the Bombay Stock Exchange (BSE). The bonds will get allotted and listed within 12 working days from the closing date of the issue.

Demat Account Not Mandatory – It is not mandatory to have a demat account to apply for these bonds. Investors have the option to subscribe to these bonds in physical form also. Whether you apply for these bonds in demat or physical form, the interest payment will still get credited to your bank account through ECS.

Also, even if you get these bonds allotted in an electronic form and sometime in future you decide to close your demat account, you will have the option to get them rematerialized in physical/certificate form.

No Lock-In Period – These tax-free bonds are freely tradable and do not carry any lock-in period. The investors may sell them at the market price whenever they want after these bonds get listed on the NSE and BSE.

Interest on Application Money & Refund – Successful allottees will earn interest at the applicable coupon rates on their application money, from the date of realization of application money up to one day prior to the deemed date of allotment. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

Minimum & Maximum Investment – Investors are required to put in a minimum investment of Rs. 5,000 in this issue i.e. at least 5 bonds of face value Rs. 1,000 each. There is no upper limit for the investors to invest in this issue. However, an investor investing more than Rs. 10 lakhs will be categorized as a high networth individual (HNI) and will get a lower rate of interest as applicable.

Interest Payment Date – IRFC will make its first interest payment on October 15 this year. Subsequent interest payments will also be made on October 15 every year.

Should you invest in this issue?

For a large number of retail investors, tax-free bonds have remained their favourite investment option for all these years since they first got allowed to be issued in 2011-12. As the finance ministry has decided to end this channel of fund raising for all these big and reliable government companies in the infrastructure financing or development space, we all have been very disappointed.

But, there is nothing we can do about it. The only thing we can do is to utilise these last couple of opportunities to subscribe to these bonds and just hope for the government to reintroduce these bonds again in the next year’s budget. Till then, risk-averse investors should subscribe to these bonds and other investors should invest their money in good mutual funds for infrastructure development to gather pace through a different funding channel.

Application Form for IRFC & NABARD Tax Free Bonds – Resident Indians and NRIs

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in IRFC or NABARD tax-free bonds, you can contact/whatsapp me at +919811797407 or mail me at skukreja@investitude.co.in

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

Tax-Free Bonds, which carry coupon rates as per the G-Sec yield in the market, have suddenly become more attractive post this year’s budget. Finance Minister Arun Jaitley in his Budget speech announced his target to contain the government’s fiscal deficit at 3.5% of GDP in 2016-17. This lower than expected fiscal deficit has resulted in a sharp fall in bond yields in the past one week or so.

Moreover, these bonds will not be available in 2016-17 and probably afterwards as well. This will increase demand for these bonds multifolds. So, before these bonds become part of history, we have two such issues left – one is from NABARD and the other would be from IRFC. I will cover the IRFC issue in another post, let’s have a look at the salient features of the NABARD issue.

Issue Opening & Closing Dates – The issue is opening for subscription on 9th of March, the coming Wednesday and will get closed on March 14.

Size of the Issue – NABARD is authorized to raise Rs. 5,000 crore from tax free bonds this financial year, out of which the company has already raised Rs. 1,500 crore by issuing these bonds through a private placement. NABARD will raise the remaining Rs. 3,500 crore in this issue.

Coupon Rates on Offer – 10-year and 15-year G-Sec yields have fallen in the last few days, which has resulted in a fall in the coupon rates of these tax-free bonds as well. This issue will carry 7.29% for 10 years and 7.64% for 15 years.

For the non-retail investors, coupon rate will be lower by 25 basis points (or 0.25%) for the 10-year option at 7.04% and 29 basis points (or 0.29%) for the 15-year option at 7.35%.

Investor Categories & Allocation Ratio – The investors have been classified in the following four categories and each category will have certain percentage of the issue size reserved during the allocation process:

Category I – Qualified Institutional Bidders (QIBs) – 15% of the issue is reserved i.e. Rs. 525 crore

Category II – Non-Institutional Investors (NIIs) – 15% of the issue is reserved i.e. Rs. 525 crore

Category III – High Net Worth Individuals including HUFs – 10% of the issue is reserved i.e. Rs. 350 crore

Category IV – Resident Indian Individuals including HUFs – 60% of the issue is reserved i.e. Rs. 2,100 crore

60% Issue Reserved for Retail Investors – This is something very unique to this issue. As we all know, the retail investors were getting 40% of the bonds reserved in all previous issues. This will be the first issue in which the retail investors will be allotted 60% of the total issue size. I think this is a good step in favour of the retail investors.

NRI/QFI Investment NOT Allowed – Like most of the past issues, Non-Resident Indians (NRIs) and Qualified Foreign Investors (QFIs) are not eligible to invest in this issue as well.

Rating of the Issue – CRISIL and India Ratings consider investing in these bonds to be safe and that is why they have assigned ‘AAA’ rating to the issue. Moreover, these bonds are ‘Secured’ in nature i.e. in case of any default, the bondholders would carry a right to make claim on certain assets of the company.

Listing & Allotment – NABARD has decided to get these bonds listed only on the Bombay Stock Exchange (BSE). The company will allot the bonds and get them listed within 12 working days from the closing date of the issue.

Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first come first served (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the Bombay Stock Exchange (BSE).

Demat A/c. Not Mandatory – It is not mandatory to have a demat account to apply for these bonds. Investors have the option to subscribe to these bonds in physical form as well. To apply in physical or demat form, the applicant is required to fill the physical form and attach the KYC documents along with the investment cheque. KYC documents include a self-attested PAN card copy, a self-attested address proof copy and a cancelled cheque.

Whether you apply for these bonds in demat or physical form, the interest payment will still be credited to your bank account through ECS. Moreover, even if you get these bonds allotted in your demat account, you have the option to rematerialize your holding in physical/certificate form if you decide to close your demat account in future.

No Lock-In Period – After these bonds get listed on the stock exchanges, these tax-free bonds are freely tradable and do not carry any lock-in period, the investors can sell them at the market price whenever they want.

Interest on Application Money & Refund – Successful allottees will earn interest at the applicable coupon rates i.e. 7.29% p.a. for 10 years and 7.64% p.a. for 15 years, on their application money, from the date of realization of application money up to one day prior to the deemed date of allotment. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

Minimum & Maximum Investment – Investors are required to put in a minimum investment of Rs. 5,000 in this issue i.e. at least 5 bonds of face value Rs. 1,000 each. There is no upper limit for the investors to invest in this issue. However, an investor investing more than Rs. 10 lakhs will be categorized as a high networth individual (HNI) and will get a lower rate of interest as applicable.

Interest Payment Date – NABARD will make its first interest payment exactly one year after the date of allotment and the date of allotment will be announced as the company allots its bonds to the successful applicants.

Record Date – For the payment of interest or the maturity amount, record date will be fixed 15 days prior to the date on which such amount is due to be payable.

Should you invest in this issue?

60% of the NABARD issue i.e. Rs. 2,100 crore is reserved for the retail investors. Not 100% sure, but I think it should take at least a couple of days for this issue to get subscribed in the retail investors category. I think many investors would have got the NHAI refunds credited by then.

As the Finance Ministry has a view that these tax-free bonds create some kind of imbalance in the market, especially for our commercial banks, they have decided not to extend such support to these issuers from the next financial year onwards. That makes this issue and the IRFC issue to be the last two opportunities for the investors in the higher tax brackets to make their investments. Such issues will not be available for at least next 18 months or so, even if the government decides to allow their issuances in Budget 2017. So, if you want to invest in these bonds and earn tax-free income, you need to act now and fast.

Application Form for NABARD & IRFC Tax Free Bonds

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in NABARD or IRFC tax-free bonds, you can contact/whatsapp me at +919811797407 or mail me at skukreja@investitude.co.in

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

It seems like the hunger for tax-free bonds is just growing unabated and whatever the issue size be it would be gobbled up by the investors on the first day itself. HUDCO will launch its second issue of tax-free bonds from 2nd of March i.e. the coming Wednesday and though the company has fixed March 10 to be the closing date of this issue, I think there is no need to emphasize here on this forum that nobody should expect to get any allotment if the bid is not made on the first day itself.

It will be the ninth such issue of tax-free bonds for the current financial year, but none of the issues has lasted for more than one day to get oversubscribed, except for the NHAI Tranche I in December. Though I think for any issue to last for more than one day the quota for the retail investors has to be more than Rs. 2,000-2,500 crore, this issue has only Rs. 715 crore for the individual investors investing Rs. 10 lakhs or less.

Here are the main features of HUDCO Tax-Free Bonds Tranche II:

Size of the Issue – Out of Rs. 5,000 crore allocated to HUDCO to be raised this financial year, 70% i.e. Rs. 3,500 crore should be raised through public issues. HUDCO raised Rs. 1,711.50 crore through its first public issue in January and it will raise the remaining Rs. 1,788.50 crore in this issue.

Coupon Rates on Offer – HUDCO issue will carry coupon rates which are absolutely same as offered by NHAI in its issue which got closed yesterday – 7.29% for the 10-year option and 7.69% for the 15-year option. Like the NHAI issue, this issue also will not offer the 20-year option.

For the non-retail investors, coupon rate will be lower by 25 basis points (or 0.25%) for the 10-year option and 30 basis points (or 0.30%) for the 15-year option, as it was the case in the NHAI issue as well.

Rating of the Issue – CARE and India Ratings have assigned ‘AAA’ rating to the issue, indicating that the issue is quite safe to invest and the company is highly likely to pay its debt obligations in a timely manner. Also, these bonds are ‘Secured’ in nature and in case of any default, the bondholders would carry a right to make claim on certain assets of the company.

NRI/QFI Investment Not Allowed – Again, Non-Resident Indians (NRIs) and Qualified Foreign Investors (QFIs) are not eligible to invest in this issue.

Investor Categories & Allocation Ratio – The investors have been classified in the following four categories and each category will have certain percentage of the issue size reserved during the allocation process:

Category I – Qualified Institutional Bidders (QIBs) – 20% of the issue is reserved i.e. Rs. 357.70 crore

Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved i.e. Rs. 357.70 crore

Category III – High Net Worth Individuals including HUFs – 20% of the issue is reserved i.e. Rs. 357.70 crore

Category IV – Resident Indian Individuals including HUFs – 40% of the issue is reserved i.e. Rs. 715.40 crore

Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first-come-first-served (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchanges.

Listing & Allotment – HUDCO bonds will get listed only on the Bombay Stock Exchange (BSE). The company will allot the bonds and get them listed within 12 working days from the closing date of the issue.

Demat A/c. Not Mandatory – It is not mandatory to have a demat account to apply for these bonds. Investors have the option to subscribe to these bonds in physical form as well. Whether you apply for these bonds in demat or physical form, the interest payment will still be credited to your bank account through ECS.

Also, even if you get these bonds allotted in an electronic form, you have the option to rematerialize your holding in physical/certificate form if you decide to close your demat account in future.

No Lock-In Period – These tax-free bonds are freely tradable and do not carry any lock-in period. The investors may sell them at the market price whenever they want after these bonds get listed on the stock exchanges within 12 working days of the closing date.

Interest on Application Money & Refund – Successful allottees will earn interest at the applicable coupon rates on their application money, from the date of realization of application money up to one day prior to the deemed date of allotment. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

Minimum & Maximum Investment – Investors are required to put in a minimum investment of Rs. 5,000 in this issue i.e. at least 5 bonds of face value Rs. 1,000 each. There is no upper limit for the investors to invest in this issue. However, an investor investing more than Rs. 10 lakhs will be categorized as a high networth individual (HNI) and will get a lower rate of interest as applicable.

Interest Payment Date – HUDCO will make its first interest payment on December 15 this year and subsequent interest payments will also be made on December 15 every year, except the last interest payment, which will be made to the bondholders along with the redemption amount on the maturity date.

Record Date – For the payment of interest or the maturity amount, record date will be fixed 15 days prior to the date on which such amount is due to be payable.

Should you invest in this issue?

Budget 2016 will be presented in the parliament on February 29 and we will get to know whether we will have these tax-free bonds available or not for the next financial year. In case the finance minister Mr. Arun Jaitley decides against extending this facility to these public sector units, then I think there will be a rise in the demand for the already listed tax-free bonds and hence, we can expect a rise in their market value as well.

Also, a higher fiscal deficit number will result in an increase in bond yields, which in turn will result in a higher coupon rates for the IRFC and NABARD issues. So, in case there is a jump in bond yields, then you should wait for the these two issues to decide on your final investments. I’ll update this post on March 1 after the climax of Budget 2016 gets revealed.

Expected Launch Date of IRFC and NABARD Issues – 2nd week of March

Application Form for HUDCO Tax Free Bonds

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in HUDCO tax-free bonds, you can contact me at +919811797407

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

2016 so far has turned out to be a nightmare for the equity investors. Portfolios have undergone a massive value erosion and sentiment has turned extremely negative. Financial advisors, who were recommending a higher allocation to equity so far, have also become cautious to advise higher equity investments. Some analysts have started calling it a bearish phase and not just a deep correction in a bullish phase.

However, it is not just the equity portfolios which are bleeding. Debt portion of portfolios are also facing the music. Past few months have seen the 10-year G-Sec yield rising to 7.95% from a range of 7.60-7.65% in September last year. Due to a scary fall in international crude prices and commodity prices like steel, aluminium etc., many companies are facing it difficult to service their debt. Credit rating agencies have also started downgrading these companies resulting in a fall in the NAVs of debt mutual funds which have lent huge money to such companies.

In such a difficult environment, investors want to opt for safer investment options and it seems that tax-free bonds are among the best options available. NHAI is launching one such issue from 24th February i.e. Wednesday and the issue is scheduled to get closed on the first of March. NHAI will raise Rs. 3,300 crore from this issue.

Here you have the salient features of this issue:

Size of the Issue – Though base size of this issue is Rs. 500 crore, NHAI will retain an additional Rs. 2,800 crore in case of oversubscription, thus making it a Rs. 3,300 crore issue. NHAI has already raised approximately Rs. 15,700 crore by issuing tax-free bonds through its public issue in December and a couple of private placements in September 2015 and February 2016.

With this Rs. 3,300 crore issue, NHAI will exhaust its full quota of Rs. 19,000 crore for the current financial year.

Coupon Rates on Offer – With a widening gap between the 10-year G-Sec yield and 15-year G-Sec yield, NHAI issue will carry 7.69% coupon rate for 15 years and 7.29% for 10 years. As with its first issue, 20-year investment option will not be there this time as well.

For the non-retail investors, coupon rate will be lower by 25 basis points (or 0.25%) for the 10-year option and 30 basis points (or 0.30%) for the 15-year option.

Rating of the Issue – CRISIL, ICRA, CARE and India Ratings have once again assigned ‘AAA’ rating to this issue. Also, these bonds are ‘Secured’ in nature i.e. in case of any default, the bondholders would carry a right to make claim on certain assets of the company.

NRI/QFI Investment Not Allowed – Like its previous issue, Non-Resident Indians (NRIs) won’t be able to make investment in this issue as well. Qualified Foreign Investors (QFIs) are also not eligible to invest in this issue.

Investor Categories & Allocation Ratio – The investors have been classified in the following four categories and each category will have certain percentage of the issue size reserved during the allocation process:

Category I – Qualified Institutional Bidders (QIBs) – 20% of the issue is reserved i.e. Rs. 660 crore

Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved i.e. Rs. 660 crore

Category III – High Net Worth Individuals including HUFs – 20% of the issue is reserved i.e. Rs. 660 crore

Category IV – Resident Indian Individuals including HUFs – 40% of the issue is reserved i.e. Rs. 1,320 crore

Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first come first serve (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchanges.

Listing & Allotment – NHAI has again decided to get these bonds listed on both the stock exchanges i.e. National Stock Exchange (NSE) as well as Bombay Stock Exchange (BSE). Bonds will be allotted and get listed on the exchanges within 12 working days from the closing date of the issue.

Demat A/c. Not Mandatory – Again, it is not mandatory to have a demat account to apply for these bonds. Investors have the option to subscribe to these bonds in physical form also. Also, even if you get these bonds allotted in your demat account, you have the option to rematerialize your holding in physical/certificate form if you decide to close your demat account in future.

However, whether you apply for these bonds in demat form or physical form, the interest payment will still get credited to your bank account through ECS.

No Lock-In Period – These tax-free bonds do not carry any lock-in period and you can buy/sell them on the stock exchanges at the market price whenever you want.

Interest on Application Money & Refund – Successful allottees will earn interest at the applicable coupon rates i.e. 7.29% p.a. for 10 years and 7.69% p.a. for 15 years, from the date of realization of application money up to one day prior to the deemed date of allotment. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

Minimum & Maximum Investment – Investors are required to put in a minimum investment of Rs. 5,000 in this issue i.e. at least 5 bonds of face value Rs. 1,000 each. There is no upper limit for the investors to invest in this issue. However, an investor investing more than Rs. 10 lakhs will be categorized as a high networth individual (HNI) and will get a lower rate of interest as applicable.

Interest Payment Date – NHAI will make its first interest payment on October 1 this year and subsequent interest payments will also be made on October 1 every year, except the last interest payment, which will be made to the bondholders along with the redemption amount on the maturity date.

Record Date – For the payment of interest or the maturity amount, record date will be fixed 15 days prior to the date on which such amount is due to be payable.

Should you invest in this issue?

I think tax-free bonds are one of the best fixed income options available for the retail investors. There is no fixed income option which carries so many distinct advantages which these bonds have, like tax-free interest, easy liquidity, favourable tax liability if sold after holding for more than one year, scope of capital appreciation, annual interest payments etc. Risk-averse investors with a long term view should definitely invest in these bonds.

Also, there is no certainty that these bonds will be allowed to be issued next year as well. For that, we’ll have to wait for the Budget speech on February 29. In case the Finance Minister decides not to allow these bonds for the next year, it will result in a sharp increase in their demand. Also, as there is a difference of 0.40% between the interest rates of 10-year bonds and 15-year bonds, I think it makes more sense to subscribe to the 15-year option.

Application Form for NHAI Tax Free Bonds

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in NHAI tax-free bonds, you can contact me at +919811797407

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

In the last 10 trading days or so, some major stock markets all over the world have plunged more than 10%. I think this could be the worst fall for the global stock markets since 2008-09, when the US economy was badly hit by the subprime mortgage crisis. In India also, stock prices across sectors have fallen 20-40% in a very short span of time to touch their lowest levels since August 2013.

Investors are scared to check their stock portfolios as there is a big value erosion out there and margin calls have started to get triggered. As the situation is turning from bad to worse, investors are looking for safe havens to protect their hard-earned money. In such a scenario, what could be a safer place to park your money than ‘AAA’ rated tax-free bonds issued by a government company.

HUDCO will be launching its public issue of tax-free bonds from January 27, offering a coupon rate of 7.64% for 15 years and 7.27% for 10 years. The company will try to raise Rs. 1,711.50 crore in this offer, including the green-shoe option to retain oversubscription to the tune of Rs. 1,211.50 crore. Though the issue is scheduled to close on February 10, I think it should get oversubscribed on the first day itself in all the four categories of investors.

Before we analyse it further, let us first check the salient features of this issue:

Size of the Issue – HUDCO is authorized to raise Rs. 5,000 crore from tax free bonds this financial year, out of which the company has already raised Rs. 1,288.50 crore by issuing these bonds on a private placement basis during July-October period.

Out of the remaining Rs. 3,711.50 crore, the company will try to raise Rs. 1,711.50 crore in this issue. However, it is still not clear whether HUDCO would raise the remaining Rs. 2,000 crore this financial year or surrender the allocated amount back to the government.

Rating of the Issue – CARE and India Ratings have assigned ‘AAA’ rating to the issue, thus suggesting that these bonds carry highest degree of safety regarding timely payment of financial obligations. Moreover, these bonds are ‘Secured’ in nature i.e. in case of any default, the bondholders would carry a right to make claim on certain assets of the company.

Coupon Rates on Offer – NHAI, which was the last ‘AAA’ rated issue this financial year, offered 7.60% coupon for its 15 years option and 7.39% for 10 years. As 10-year G-Sec yield has fallen and 15-year G-Sec yield has risen since then, HUDCO bonds will carry 7.64% for the 15-year option and 7.27% for the 10-year option.

For the non-retail investors, these rates would be lower by 25 basis points (or 0.25%).

NRI/QFI Investment Not Allowed – Non-Resident Indians (NRIs) and Qualified Foreign Investors (QFIs) are not eligible to invest in this issue as well.

Investor Categories & Allocation Ratio – The investors have been classified in the following four categories and each category will have certain percentage of the issue size reserved during the allocation process:

Category I – Qualified Institutional Bidders (QIBs) – 20% of the issue is reserved i.e. Rs. 342.30 crore

Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved i.e. Rs. 342.30 crore

Category III – High Net Worth Individuals including HUFs – 20% of the issue is reserved i.e. Rs. 342.30 crore

Category IV – Resident Indian Individuals including HUFs – 40% of the issue is reserved i.e. Rs. 684.60 crore

Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first come first serve (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchanges.

Listing & Allotment – Bombay Stock Exchange (BSE) is the only stock exchange where HUDCO bonds will get listed. The company will allot the bonds and get them listed within 12 working days from the closing date of the issue.

Demat A/c. Not Mandatory – It is not mandatory to have a demat account to apply for these bonds. Investors have the option to subscribe to these bonds in physical/certificate form as well. Whether you apply for these bonds in demat or physical form, the interest amount will still get credited to your bank account directly through ECS.

Also, even if you get these bonds allotted in your demat account, you will have the option to rematerialize your bond holding in physical/certificate form if you decide to close your demat account in future.

No Lock-In Period – These tax-free bonds are freely tradable and do not carry any lock-in period. The investors may sell them at the market price whenever they want after these bonds get listed on the stock exchanges within 12 working days of the closing date.

Interest on Application Money & Refund – Successful allottees will earn interest at the applicable coupon rates i.e. 7.27% p.a. for 10 years and 7.64% p.a. for 15 years on their application money, from the date of realization of application money up to one day prior to the date of allotment. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

Minimum & Maximum Investment – Investors are required to put in a minimum investment of Rs. 5,000 in this issue i.e. at least 5 bonds of face value Rs. 1,000 each. There is no upper limit for the investors to invest in this issue. However, an investor investing more than Rs. 10 lakhs will be categorized as a high networth individual (HNI) and will get a lower rate of interest as applicable.

Interest Payment Date – HUDCO will make its first interest payment exactly one year after the date of allotment and the date of allotment will be announced as the company allots its bonds to the successful applicants.

Record Date – For the payment of interest or the maturity amount, record date will be fixed 15 days prior to the date on which such amount is due to be payable.

Should you invest in this issue?

Global crude oil prices have plunged to their lowest levels since May 2003 and are currently trading at $26.76 per barrel as I write this line. Commodity prices are also falling sharply as China has suffered from its slowest GDP growth in 25 years. 10-year treasury note yield in the US has fallen below 2%, even as the US Fed has announced its decision to hike interest rates there. All these events suggest that there is a major demand slowdown out there which could potentially push some of the major economies back into some kind of recessionary environment.

Amid such a cruel slowdown, I am surprised (and disappointed also) how India is still having a high CPI inflation and why the RBI is still reluctant to cut interest rates when the economy badly requires low levels of rates in order to keep floating for survival. I strongly believe that there is an urgent requirement for the RBI to cut interest rates and not to wait for its next monetary policy on February 2nd to take any such action.

I think HUDCO issue is an opportunity for the risk-averse investors to invest their money for a healthy tax-free return for a long period of time. This could be one of the last couple of issues available for the investors this financial year to earn a risk-free income. Moreover, if the RBI obliges with a 25 or 50 basis points rate cut, we could see coupon rates falling sharply in the next bond issue by NHAI.

Application Form for HUDCO Tax Free Bonds

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in HUDCO tax-free bonds, you can contact me at +919811797407

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

First of all, we wish all the readers of OneMint a very Happy & Prosperous New Year !! May God give you success in your work and peace in your life and 2016 turns out to be the best year in your life !!! 🙂

IREDA 7.74% Tax-Free Bonds

Hunger without food is bad for health, so is overeating. Investors were hungry for tax-free bonds, especially a big issue to satisfy their demand, like the NHAI one. But, when such an issue came, they were not able to have full of it. It only got subscribed by 0.86 times in the retail investors category.

Such a big supply or say shortage of demand resulted in poor listing for the IRFC bonds. Investors were expecting some healthy listing gains with IRFC bonds after it received a good response and big oversubscription on the first day itself. But, that did not materialise, probably because NHAI offered slightly higher rate of interest or probably many investors subscribed to IRFC bonds to get its listing gains only.

As the NHAI issue got closed on the last day of 2015, IREDA announced slightly higher rate of interest for its issue which is getting launched on Friday next week i.e. January 8th. It will offer a maximum of 7.74% coupon rate for a period of 15 years, which is 0.14% higher than NHAI’s 7.60%. But, at the same time, this issue is AA+ rated, so it can carry a slightly higher rate of interest.

The issue is officially scheduled to close on January 22, but I think it should get fully subscribed much before than that.

Before we analyse it further, let us first quickly check the salient features of this issue:

Size of the Issue – IREDA is authorized to raise Rs. 2,000 crore from tax free bonds this financial year, out of which the company has already raised Rs. 284 crore by issuing these bonds through a private placement. The company will try to raise the remaining Rs. 1,716 crore in this issue.

Rating of the Issue – ICRA and India Ratings have assigned ‘AA+’ rating to the issue, thus suggesting that these bonds carry very low credit risk and high degree of safety regarding timely payment of financial obligations. As all the previous issues were rated ‘AAA’, this is the first issue this financial year which is rated AA+.

Moreover, these bonds are ‘Secured’ in nature i.e. in case of any default, the bondholders would carry a right to make claim on certain assets of the company.

Coupon Rates on Offer – As this issue is rated AA+, it can offer interest rates which are 10 basis points (or 0.10%) higher than the rates which a AAA-rated issue could have offered. While NHAI 15-year option carried 7.60% rate of interest, IREDA is offering 7.74% for the same duration. For 10-year period, IREDA issue will have 7.53% rate of interest as against 7.39% which NHAI was offering.

As the NHAI issue did not offer 20-year investment period, IREDA offer will be attractive for the long-term institutional investors like insurance companies or pension funds. For 20-year period, IREDA is offering 7.68% to the retail investors and 7.43% for the non-retail investors.

For the non-retail investors, these rates would be lower by 25 basis points (or 0.25%).

NRI/QFI Investment NOT Allowed – Non-Resident Indians (NRIs) and Qualified Foreign Investors (QFIs) are not eligible to invest in this issue.

Investor Categories & Allocation Ratio – The investors have been classified in the following four categories and each category will have certain percentage of the issue size reserved during the allocation process:

Category I – Qualified Institutional Bidders (QIBs) – 20% of the issue is reserved i.e. Rs. 343.20 crore

Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved i.e. Rs. 343.20 crore

Category III – High Net Worth Individuals including HUFs – 20% of the issue is reserved i.e. Rs. 343.20 crore

Category IV – Resident Indian Individuals including HUFs – 40% of the issue is reserved i.e. Rs. 686.4 crore

Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first come first serve (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchanges.

Listing & Allotment – IREDA has decided to get these bonds listed only on the Bombay Stock Exchange (BSE). The company will allot the bonds and get them listed within 12 working days from the closing date of the issue.

Demat A/c. Not Mandatory – It is not mandatory to have a demat account to apply for these bonds. Investors have the option to subscribe to these bonds in physical form as well. Whether you apply for these bonds in demat or physical form, the interest payment will still get credited to your bank account through ECS.

Also, even if you get these bonds allotted in your demat account, you have the option to rematerialize your holding in physical/certificate form if you decide to close your demat account in future.

No Lock-In Period – These tax-free bonds are freely tradable and do not carry any lock-in period. The investors may sell them at the market price whenever they want after these bonds get listed on the stock exchanges within 12 working days of the closing date.

Interest on Application Money & Refund – Successful allottees will earn interest at the applicable coupon rates i.e. 7.53% p.a. for 10 years and 7.74% p.a. for 15 years and 7.68% p.a. for 20 years on their application money, from the date of realization of application money up to one day prior to the date of allotment. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

Minimum & Maximum Investment – Investors are required to put in a minimum investment of Rs. 5,000 in this issue i.e. at least 5 bonds of face value Rs. 1,000 each. There is no upper limit for the investors to invest in this issue. However, an investor investing more than Rs. 10 lakhs will be categorized as a high networth individual (HNI) and will get a lower rate of interest as applicable.

Interest Payment Date – IREDA will make its first interest payment exactly one year after the date of allotment and the date of allotment will be announced just before the listing date. I will update this post as and when it gets announced.

Record Date – For the payment of interest or the maturity amount, record date will be fixed 15 days prior to the date on which such amount is due to be payable.

Should you invest in this issue?

IREDA (Indian Renewable Energy Development Agency), 100% owned by the Government of India, was established in 1987 to promote, develop and extend financial assistance for renewable energy and energy efficiency/conservation projects. As the company has strategic importance in the development of the renewable energy sector, certain special privileges have been provided to the company:

* Regular capital infusion in the company by the Government,

* Sovereign guarantee to the lenders against approximately 58% of IREDA’s total borrowings,

* Rs. 300 crore allocation from the National Clean Energy Fund (NCEF),

* Access to cheaper sources of funding, like these tax-free bonds etc.

Reasons for a lower Credit Rating as ‘AA+’ – Many investors want to know why this issue has been rated ‘AA+’ this time around when last time in February 2014, IREDA issued these bonds and the issue was assigned ‘AAA’ rating by the credit rating agencies. Investors also need to decide whether they should invest in this issue with a higher rate of interest being a AA+ rated issue or wait for HUDCO to announce its interest rates and then take a decision.

So, as the HUDCO interest rates are yet to get announced and we also don’t know when exactly the issue will be launched, it is difficult to guesstimate its interest rates. That is why I can talk only about this issue at this point in time. As far as the rating is concerned, I think higher NPAs and lower yield on its lending portfolio resulting in a fall in the company’s net interest margins (NIMs) are the two primary reasons for its rating downgrade from AAA to AA+.

IREDA was doing well in terms of managing its asset quality a couple of years back. Its Gross NPAs improved from 19.9% in 2007 to 3.86% in 2013. But, in recent times, its financials have taken a hit and its Gross NPAs have again increased to 5.34% by March 31, 2015 and 5.92% by September 30, 2015.

IREDA vs. REC vs. PFC

(Note: Figures are in Rs. Crore, except figures in %)

Moreover, as per ICRA, lending only to the renewable energy sector, low net worth of the company as compared to some of the bigger players in the power financing business and higher NPAs in the small hydro, cogen and biomass segment are a few other reasons for a lower rating.

However, as IREDA is 100% owned and backed by the Government of India and as the government is committed to encourage the use and development of renewable sources of energy, I think the company should be able to improve its financials going forward. Its capital adequacy ratio (CAR) is quite comfortable at 27.40% on September 30, 2015 and its debt-to-equity ratio is expected to be 3.93% after this issue gets completed. IREDA also plans to go public in the next 2-3 years.

Personally, I am quite comfortable investing in this issue as I think IREDA should be able to improve its balance sheet going forward and the government backing will always be there for a company financing the renewable energy space. However, conservative investors, who need to invest only Rs. 10 lakh or less in these tax-free bonds, should wait for the HUDCO issue or NHAI Tranche II.

Application Form for IREDA Tax Free Bonds

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in IREDA tax-free bonds, you can contact me at +919811797407