Tax free bonds

After REC, PFC and IIFL ,  NTPC and HUDCO are coming up with tax free bonds.

Replicating the pros and cons from a previous article about REC bonds.


1. High post dividend tax yield is attractive.

2. Can form a good part of your debt portfolio( but make sure your portfolio doesn't already have too much long-term debt in it before you add more.)

3.The issues have good ratings from agencies Crisil, CARE and ICRA

4. Good for those who are looking for regular income vis-a vis compounded growth


1. If you are looking for compounded growth, you have to re-invest interest with great caution  Else, interest can be spent and the face value that you get back at maturity can be a very small amount ( considering inflation). Imagine the value of 1 lakh today vs 10 years later :-)
2.These are very long-term bonds and liquidity can be  limited.

NTPC tax-free bonds issue to open on December 3 State-run NTPC has come out with its public issue of tax-free secured redeemable non-convertible bonds of a face value of Rs 1,000 each in the nature of debentures having tax benefits, aggregating up to Rs 1,750 crore (Including option to retain over subscription of Rs 750 crore).

HUDCO, a public sector company is going to open its tax free bonds on December 02 of face value Rs 1000 each which is scheduled to close on January 10, 2014.

Coupon rate of 8.51%, 8.58% and 8.76% payable annually for 10 years (Series 1A), 15 years (Series 2A) and 20 years (Series 3A), respectively  for Qualified Institutional buyers (QIBs), Corporates and High Networth Individuals (HNIs) applying for bonds more than Rs. 10,00,000. Coupon rate of 8.76% , 8.83% and 9.01% payable annually for 10 years (Series 1B), 15 years (Series 2B) and 20 years (Series 3B), respectively for Retail Individual Investors (RII) applying for bonds upto Rs. 10,00,000.

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