Personal Finance Blog- India V 2.0: equity

REC has come up with tax free bonds ( issue open until later part this month).
~
8.26% for 10-year maturity, 8.71% for 15-year maturity and 8.62% for 20-year maturity.

The interest rates look very attractive for investors (esp. if you are in high income bracket,as the interest from the bonds are tax free).

Pros:-

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 issue is rated AAA by rating agencies Crisil, CARE and ICRA

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

Cons:-

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.

Personally, I think that someone who trusts REC for more than 10 years would be "well off" investing in "REC" shares directly,considering the current market price- which is below the book value. Dividend yield at current price is 4.5% -tax free :-).