IRFC Bonds: Earn up to 7.53% Per Annum TAX FREE
Written on Wednesday, December 2, 2015
By Mohit Mittal- AVP & Head Fixed Income, Bajaj Capital Ltd.
For those who want to lock away money for the long-term and hedge the reinvestment risk, tax free bonds are a good option to grow their wealth. If you compare the same with bank fixed deposits, you can generate far better returns with tax free bonds as your Fixed Deposit investment at 8.25% per annum would offer a post-tax yield close to 5.8%. Now, if you invest in tax free bonds, at 7.4-7.7 percent, the effective pre-tax return for a person in the highest bracket works out to 10-11 percent. Retail investors (With investment of up to 10 Lakhs) in the highest tax bracket can get 10.6-11 percent return. Considering the interest is entirely tax-free, the yields are attractive.
IRFC will open subscription on 8th Dec 2015 for an issue size of Rs. 4532 Crores. There is a minimum application size of 5 bonds (individually or collectively) with a face value of Rs. 1000 per bond. The public issue will be available in physical and demat mode. Returns on tax free bonds are guaranteed and this issue carries AAA rating from credit rating agencies like ICRA, CRISIL and CARE. Making it more attractive the bond is proposed to be listed on BSE and NSE.
Retail investors, HUFs and NRIs can earn 7.53% by investing for duration of 15 years. For investment duration of 10 and 20 years, interest rate would be 7.32% and 7.50% per annum respectively.