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After HUDCO & NTPC, now NHB and IRFC have announced their tax free bonds.
Tax free bonds have become the flavor of second half of this financial year and every new bond brings in something extra for investor. After HUDCO & NTPC, now NHB and IRFC have announced their tax free bonds. NHB is offering almost the peak of the interest and will be difficult to miss whereas IRFC issue size is very large.
Let's see what these bonds have put across for investors and why they are so appealing:
About the NHB and IRFC
National Housing Bank is a regulator for housing sector and also a financier. The organization is wholly owned by Reserve Bank of India and is very prominent in ensuring the real estate sector remains affordable for small investors. The company has also launched a Real estate index which shows the trend in real estate process for different cities.
On other side IRFC is an arm of Indian Railways specifically created for raising funds. These funds are then utilized for buying wagons, locomotives and coaches along with financing projects of the railways. The company has already set a target for all these objectives and tax free bonds is one of the means for achieving the same.
Tax Free Bond features
The issue size of NHB is Rs 2100 crore while IRFC is raising almost Rs 10000 crore from investors. 40% of the money is kept for retail investors who are offered a higher interest than other categories. Both these bonds are for long term with a term options of 10, 15 and 20 years period. Price offered for these bonds is Rs 5000 per bond and one can subscribe to one bond.
Both these bonds are AAA rated bringing highest safety to the investors. The NHB bonds will get listed at NSE while IRFC will be listed on NSE & BSE which will provide the liquidity and trading opportunities to the investors. NHB issue is opening on 30th December, 2013and will be available uptil January 30th , 2014 while IRFC issue will be available form 6th January, 2014 to 20th January, 2014.
Tax Free Bond Interest Rates
The good part about these bonds is the higher interest rates offered to retail investors. NHB is offering 8.51.8.88 & 9.01% interest rates to retail investors for 10, 15 and 20 years horizon. On other side IRFC is offering 8.48 per cent for 10 years and 8.65 per cent for 15-year bonds. This interest will entirely be tax free in the hand of investors. With interest rates seems to be in a peak territory, a 9% returns by NHB is the highest and among the few which investors are going to receive.
Should you invest?
10 year yield of government security has already breached 9% and with RBI not doing any rate hike in its last policy due to slow economic growth indicates that the rise in interest rate may not happen soon. Thus, NHB bonds offering may be at a peak and it will be difficult for other bonds in future to replicate this.
Also, when you compare these bonds with FD offering 9% interest, the tax free bonds surely have an edge due to its non-taxability. A FD return will lower down to below7% for someone in highest tax slab. Hence NHB bonds 9% is the maximum an investor may get from these fixed interest instruments.
With AAA rating and high interest offering, 15 and 20 year options are good options for investor to invest in these bonds. Don't miss out on NHB since you may not get such high offering in the future. IRFC interest rates are lower than NHB but still it ensures safety of money considering the high rating and ownership of the Ministry of Railways. But ensure that you are allocating your money with a financial planning approach and have identified your requirement before you think of investing in these bonds.
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