High on the heels of IDFC who recently opened the subscription for their IDFC Infrastructure Bonds for Tax Saving and then closely followed by L&T Infra Bonds for Tax Saving, IFCI has now joined the bandwagon to cash in on the tax saving rush and has launched its own issue of Infrastructure Bonds for tax savings as the financial year is going to come to a close in India in March 2012.
The market & the investors can expect to see more offerings for Long Term Infrastructure Bonds from various other organizations in coming few months as tax savings will be the buzz word since the financial year is going to come to a close in March 2012 and hence tax savings will be on the minds of investors. Now with so many different types of infrastructure bonds coming to the market, investors will be confused about what is the difference among them and which one to subscribe to? Basically, it all boils down to the interest rates offered and the credibility of the organization offering them. Usually, a good stable organization having a good credit rating (are they reliable?) will offer good enough interest rates, while organizations having a bit lower credit ratings may like to offer somewhat better interest rates to attract investors despite their low credit ratings.
Let's start with some basics first for the IFCI Infrastructure bonds issue:
If you are completely new to Tax Free Infrastructure Bonds, we strongly advise you to get the basic details about working of the infra bonds and the tax saving eligibility and calculations as mentioned in the article Tax Free Infrastructure Bonds Details: Save Tax On Investments in Infra Bonds. Once you are familiar with the basic calculations and tax saving details as per your individual tax slab, you can proceed with the details of this open issue of IFCI Infra Bonds for Tax Savings 2011-2012
The basic working of these bonds from any issuing company or organization remains the same, whether it is IDFC or L&T or IFCI. Here are the examples of the calculations including tax benefits for investments in Infrastructure bonds :Calculations and Returns in Infrastructure Bonds Investments.
Now, once you are clear about the fundamental details, let's see the IFCI Infra Bonds for Tax savings in more detail:
Relatively small issue size for the IFCI infra bonds, trying to collect around 100 Crore Rs. from the market - compare that to L&T infra bonds which are looking for 1100 Crores.
Green shoe option is there with the IFCI infra bonds but the green shoe option details remain unspecified.
The purpose & capital raised through the IFCI infra bonds will be used to finance the infrastructure projects all across the country.
The bonds are being offered in 2 different options with 2 different maturity periods - 10 year and 15 years:
Series 1 - is for 10 year long bonds paying an interest rate of 9.09% per annum - coupon rate is higher than IDFC and L&T which are at 9%
Investors have the option to redeem the bonds after the mandatory 5 year lock-in period. They can also exit after 7 years period.
Series 2 - Is for 15 year long bonds paying an interest rate of 9.16% per annum - coupon rate is higher than IDFC and L&T which are at 9%
Exit option available after 5 years and 10 years period.
Both these bonds come with the option of annual and cumulative dividend payment.
The bonds can be traded after the minimum lock in period of 5 years - the lock in period if for gaining the tax benefit.
One needs to invest a minimum of 5000 Rs. to buy a IFCI infra bond. Upper limit is not there i.e. one can apply for and buy any no. of bonds from IFCI.
However, as per the rule of tax-saving investments under section 80CCF of the IT Act, tax savings will be allowed only on a maximum of 20,000 Rs. irrespective of the amount of investments made in the IFCI Infra Bonds.
What differentiates IFCI Infra Bonds from the other issues like L&T & IDFC Infra Bonds which are currently open?
As of now IDFC Infra bonds issue is open (See details: IDFC Infrastructure Bonds for Tax Saving) and (L&T Infra Bonds for Tax Saving is open), but very soon we expect more infrastructure companies to line up with their issues as there are still 3.5 months to end of financial year.
The main difference between IFCI infra bonds and IDFC & L&T infra bonds is the credit rating assigned and the price per bond.
What is the security rating for the IFCI Infra Bonds ?
'BWR AA-' by Brickwork Ratings India Pvt. Limited
CARE 'A+' by CARE Ratings (Credit Analysis & Research Ltd.)
'LA' by ICRA Limited
How much will I effectively save by investing in IFCI Infra Bonds ?
The calculations will be similar to what we covered for IFCI Infra Bonds. Please see IFCI Infra Bonds for Tax Saving: Calculations, Review and Details
What are the investment dates and period for IFCI Infra Bonds ?
The IFCI Infra Bonds subscription date was opened on November 30, 2011 and will close on January 16, 2012. This will give you enough time to plan your investments rather than waiting for last minute tax savings. Also, 9% interest offering looks good.
It is not mandatory to have a PAN no. for buying these bonds. Also, one can buy these bonds in both demat as well as physical format.
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