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Infrastructure Bonds India
At present organizations such as Finance Corporation of India (IFCI), PTC India Financial Services, Rural Electrification Corporation (REC), and SREI Infrastructure Finance are offering infrastructure bonds in India. IDFC has generated INR 533 crores by issuing the infrastructure bonds, whose subscription closed during December 2011.
IDFC is expected to come up with its next lot of infrastructure bonds pretty soon. The upper limit for investing in these bonds is 20,000 rupees and tax deduction can also be claimed as per the Section 80CCF.
If the investors are in the top tax bracket they can save a maximum of INR 6180 by putting their money in these bonds. K Ramalingam, the chief financial planner and director of Holistic Investment Planners, has stated that since the INR 20,000 limit is in addition to the previously provided deduction limit of INR 1 lakh, these are ideal options for investment.
Ramalingam has further stated that the issuer can be opted for with regards to the following categories:
However, the buyback facility is provided after 5 years only in case of 10 year bonds. For the 15 year bonds the buyback benefit is applicable after 7 years. All the bonds provide cumulative and yearly options for paying the interest irrespective of the maturity periods.
The investors can choose a 10 year bond, a 15 year bond or a combination of both. They can go for the demat mode provided they have an account, or else they can choose the physical certificates.
When the application is done in the demat mode the investors are required to provide details of their demat account, a cheque, and a PAN card copy. In case they are looking to invest physically, an address proof will be required as well.
Infrastructure Bonds Application Details
Normally, the face value of the infra bonds is INR 5000. The application needs to be made for one bond initially, followed by multiples. There is no maximum limit for investment, though. However, in case of the SREI Infra bonds, the face value is INR 1000 and the application can be made for at least one bond.
Infrastructure Bonds Comparative Analysis
The infrastructure bonds available in India differ in factors like interest rates, buy back options that are available after the lock-in period, and rankings provided by the credit rating agencies.
IFCI offers the highest rates of interest. In case of the 10 year bonds the following rates are offered:
For the 15 year bonds IFCI provides an interest rate of 9.16 percent while the other companies offer 9.15%. It needs to be noted here that while IFCI and REC are completely owned by the government, PTC which owns PTC India Financial Services, is a public private partnership company that is backed by the government. SREI Infra is a privately held organization.
REC has received an AAA rating, which means it is the safest investment option of the above mentioned bond issuers when it comes to in-time repayment of interest and principal.
The IFCI bonds have been rated BWR AA by Brickwork Ratings, LA by ICRA, and CARE A+ by CARE. ICRA and CARE have assigned a rating of A+ to the infra bonds issued by the PTC India Financial Services. The infra bonds of SREI have been ranked AA by CARE.
Rajendra Routela, the director of RR Investors, feels that since IFCI and REC are owned by the government they offer higher margins of safety.
Investment Strategies for Infrastructure Bonds
In the Indian market for infrastructure bonds there are special strategies for investors who are prepared to split the amount. Deepak Panjwani, the head of debt markets division at GEPL Capital, has provided the following formula for investors looking to go down that route:
INR 10 thousand in the 10 year bonds of IFCI, which provides an interest rate of 9.09 percent + INR 10 thousand in the 15 year bonds issued by REC, which offers 9.15 percent.
This is supposed to make sure that the investor receives the very best in both rates and safety. However, it may also be stated that not every financial planner will give such an advice as 20,000 rupees is not a major amount and thus cannot be tracked in a period of 5 years.
Srikanth Meenakshi, the founder of fundsindia.com states that if the investors want to keep it simple they should look for the one issuer who suits their requirement to the 't' and then invest the entire amount over there.
Panjwani also has a word of advice for investors who are facing fund crunches. He states that since these bonds are issued throughout the year, investors can buy them according to their convenience and financial condition.
It is normally advisable to sell off the bonds when the buyback offers are available if the interest rates go up. However, if the rates are going down then the holders should wait till the end of their bond's maturity period.
Recently Launched Infrastructure Bonds
IDFC Ltd. came out with an infra bond on November 21, 2011 followed by L&T Infrastructure Finance Co. Ltd. on November 24 that year itself. The tax benefits on both these bonds will be available for 2012 only.
Both these bonds are providing interest rates of 9 percent that is at par with government backed securities that have similar levels of residual maturity. These bonds are useful for both the investors and the providers. Issuers receive long term financing and need to pay rates that are comparatively lower than the ones offered by the banks. The investors are able to save their taxes and are also guaranteed good returns in the end.
Both IDFC and L&T are offering two forms of interest payment - a yearly payment of interest and an option of collected interest that will accrue whenever the bonds are redeemed or bought back.
The two bonds have maturity periods of 10 years each with minimum lock in periods of 5 years. Once the lock in period gets over the bonds can be liquidated at the share market.
These bonds can be bought both through demat accounts or via physical certificates. However, if the investors wish to trade these on the stock market, they will need to have demat accounts.
The IDFC bonds have a face value of INR 5000 each and the minimum amount that can be invested is 10,000 rupees. The face value of the L&T Infra Bonds is INR 1000 each and a minimum of 5 bonds have to be bought.
For the L&T bonds the buyback option is available after 5 years and 7 years. If the holders do not avail those options they will not be able to redeem the bond before it matures. The IDFC bonds have a buyback option after 5 years.
Tax Benefits
The tax savings available as per section 80CCF of the Income Tax Act may be enumerated as below:
Last updated On: 22nd March 2012
If the investors are in the top tax bracket they can save a maximum of INR 6180 by putting their money in these bonds. K Ramalingam, the chief financial planner and director of Holistic Investment Planners, has stated that since the INR 20,000 limit is in addition to the previously provided deduction limit of INR 1 lakh, these are ideal options for investment.
Ramalingam has further stated that the issuer can be opted for with regards to the following categories:
- Credit rating
- Financial performance of the company
- Interest rates provided
Infrastructure Bonds in India - Some Common Factors
Every infrastructure bond issued in India has a term period ranging from 10 to 15 years. The holders also have the option to buy these back after 5 years from the date of allotment. They can also liquidate the bonds by placing them on the stock exchange after the minimum lock in period of 5 years gets over.However, the buyback facility is provided after 5 years only in case of 10 year bonds. For the 15 year bonds the buyback benefit is applicable after 7 years. All the bonds provide cumulative and yearly options for paying the interest irrespective of the maturity periods.
The investors can choose a 10 year bond, a 15 year bond or a combination of both. They can go for the demat mode provided they have an account, or else they can choose the physical certificates.
When the application is done in the demat mode the investors are required to provide details of their demat account, a cheque, and a PAN card copy. In case they are looking to invest physically, an address proof will be required as well.
Infrastructure Bonds Application Details
Normally, the face value of the infra bonds is INR 5000. The application needs to be made for one bond initially, followed by multiples. There is no maximum limit for investment, though. However, in case of the SREI Infra bonds, the face value is INR 1000 and the application can be made for at least one bond.
Infrastructure Bonds Comparative Analysis
The infrastructure bonds available in India differ in factors like interest rates, buy back options that are available after the lock-in period, and rankings provided by the credit rating agencies.
IFCI offers the highest rates of interest. In case of the 10 year bonds the following rates are offered:
- IFCI - 9.09 percent
- REC - 8.95 percent
- PTC India Financial - 8.93 percent
- SREI Infra Finance - 8.9 percent
For the 15 year bonds IFCI provides an interest rate of 9.16 percent while the other companies offer 9.15%. It needs to be noted here that while IFCI and REC are completely owned by the government, PTC which owns PTC India Financial Services, is a public private partnership company that is backed by the government. SREI Infra is a privately held organization.
REC has received an AAA rating, which means it is the safest investment option of the above mentioned bond issuers when it comes to in-time repayment of interest and principal.
The IFCI bonds have been rated BWR AA by Brickwork Ratings, LA by ICRA, and CARE A+ by CARE. ICRA and CARE have assigned a rating of A+ to the infra bonds issued by the PTC India Financial Services. The infra bonds of SREI have been ranked AA by CARE.
Rajendra Routela, the director of RR Investors, feels that since IFCI and REC are owned by the government they offer higher margins of safety.
Investment Strategies for Infrastructure Bonds
In the Indian market for infrastructure bonds there are special strategies for investors who are prepared to split the amount. Deepak Panjwani, the head of debt markets division at GEPL Capital, has provided the following formula for investors looking to go down that route:
INR 10 thousand in the 10 year bonds of IFCI, which provides an interest rate of 9.09 percent + INR 10 thousand in the 15 year bonds issued by REC, which offers 9.15 percent.
This is supposed to make sure that the investor receives the very best in both rates and safety. However, it may also be stated that not every financial planner will give such an advice as 20,000 rupees is not a major amount and thus cannot be tracked in a period of 5 years.
Srikanth Meenakshi, the founder of fundsindia.com states that if the investors want to keep it simple they should look for the one issuer who suits their requirement to the 't' and then invest the entire amount over there.
Panjwani also has a word of advice for investors who are facing fund crunches. He states that since these bonds are issued throughout the year, investors can buy them according to their convenience and financial condition.
It is normally advisable to sell off the bonds when the buyback offers are available if the interest rates go up. However, if the rates are going down then the holders should wait till the end of their bond's maturity period.
Recently Launched Infrastructure Bonds
IDFC Ltd. came out with an infra bond on November 21, 2011 followed by L&T Infrastructure Finance Co. Ltd. on November 24 that year itself. The tax benefits on both these bonds will be available for 2012 only.
Both these bonds are providing interest rates of 9 percent that is at par with government backed securities that have similar levels of residual maturity. These bonds are useful for both the investors and the providers. Issuers receive long term financing and need to pay rates that are comparatively lower than the ones offered by the banks. The investors are able to save their taxes and are also guaranteed good returns in the end.
Both IDFC and L&T are offering two forms of interest payment - a yearly payment of interest and an option of collected interest that will accrue whenever the bonds are redeemed or bought back.
The two bonds have maturity periods of 10 years each with minimum lock in periods of 5 years. Once the lock in period gets over the bonds can be liquidated at the share market.
These bonds can be bought both through demat accounts or via physical certificates. However, if the investors wish to trade these on the stock market, they will need to have demat accounts.
The IDFC bonds have a face value of INR 5000 each and the minimum amount that can be invested is 10,000 rupees. The face value of the L&T Infra Bonds is INR 1000 each and a minimum of 5 bonds have to be bought.
For the L&T bonds the buyback option is available after 5 years and 7 years. If the holders do not avail those options they will not be able to redeem the bond before it matures. The IDFC bonds have a buyback option after 5 years.
Tax Benefits
The tax savings available as per section 80CCF of the Income Tax Act may be enumerated as below:
| Tax Category | Savings in INR |
|---|---|
| 30.90 percent | 6180 |
| 20.60 percent | 4120 |
| 10.30 percent | 2060 |
Last updated On: 22nd March 2012
Infrastructure Bonds India
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