Indian Railway Tax Free Bonds: Review, Analysis & Calculation for IRFC Bonds 2012

The Indian Railways Finance Corporation is expecting to raise more around 6300 Crore Rs. through tax saving bond issue and looks like it is hitting the bulls-eye. The first day of opening the issue of IRFC bonds has given a whooping four times subscription.
High on the heels of other government infrastructure companies issuing Long term infrastructure bonds offering tax benefits to investors, the Indian Railways Finance Corporation (IRFC) has come out with its own issue of Tax Saving Bonds to tap into the benefits of long term capital raising thereby offering investors another option for tax savings.
Let's see some basic details of these IRFC Tax Saving Bonds first:

Calculations for effective returns from IRFC Tax Saving Bonds

What is the actual instrument being offered in the name of IRFC Bonds for Tax Savings
The issue offered by IRFC are Tax Free Secured Redeemable Non Convertible Bonds in the nature of Debentures but offering tax benefits under section
10(15) (iv) (h) of the Income Tax Act, 1961.

See Related NHAI Tax Free Bonds issue

What is the business and function of IRFC?
IRFC or Indian Railway Finance Corporation is the finacial arm of Indian Railways under the minitry of Railways, Government of India. Its main function is to provide and finance the require capital to development projects in Railways.

IRFC Tax Free Bonds 2012

What are the opening and closing dates for IRFC Bonds for Tax Savings
The IRFC Tax Saving Bond issue opens on January 27, 2012, and closes on February 10, 2012.

What are the tax benefits avaialble for investors in the IRFC Bonds for Tax Savings
The income earned as interest from the IRFC tax saving bonds is fully exempted from income tax.
No TDS will be deducted by the issuer while paying the interest.
There is no Wealth Tax levied on investment in Bond under section 2(ea) of the Wealth-tax Act, 1957

What is the issue size of IRFC Bonds for Tax Savings
The issue constitutes of Rs. 3000 Crores with an option of extending it to another 3,300 Crores taking the total to 6,300 Crores in case of over-subscription.

Are the IRFC Bonds for Tax Savings available only in demat form?
We currently do not have information about the physical form for IRFC bonds, but demat forms are surely available.

What are the credit ratings assigned to IRFC Bonds for Tax Savings
CRISIL has awarded "CRISIL AAA/Stable" ,CARE has assigned "CARE AAA" and "[ICRA] AAA" by ICRA. These are similar to the rating offered to the NHAI Tax Free Bonds issue
All these indicate good stable outlook.

Where will the IRFC Bonds for Tax Savings be listed?
The IRFC bonds will be listed both on BSE and NSE.

What are the effective returns available on IRFC Bonds for Tax Savings considering the tax free interest?
IRFC bonds are offering an effective post-tax returns of about 12% - please note that this is for individuals in the highest 30% tax bracket.

What are the other options available for tax savings to investors other than IRFC Bonds for Tax Savings
The investors can invest in Long Term Infrastructure bonds which are currently open:
1) IDFC Infrastructure Bonds for Tax Saving
2) L&T Infra Bonds for Tax Saving
3) SREI Infra Bonds for Tax Saving

What are the investment details about IRFC Bonds for Tax Savings?
Each IRFC Bond will cost Rs. 1,000 each (face value) and one needs to apply for atleast 10 bonds meaning the minimum application amount comes to Rs. 10,000. Above that, the investors need to apply in multiples of 5 bonds.
The bonds come in two series (I and II) -
For sereis I coupon rate of 8.00% p.a for 10 years (Series I) and 8.10% p.a for 15 years (Series II)

However, if one applies for amount more than 5 Lakhs, he can earn another extra 0.15% p.a. and 0.20% p.a. on series 1 and series 2 respectively.

How can one apply for IRFC Tax saving bonds?
Interested investors can apply through the BRLM sites and possibly also through the trading portals.

How will the capital collected by IRFC Tax saving bonds be used by IRFC?
The money collected will be used for taking up more rolling stock and capacity increase funding in Indian Railways

Final Thoughts about IRFC Bonds for Tax Savings?
IRFC is backed by the government. Hence, the the stability and credit of these bonds can be considered to be stable.
Investors looking for tax savings options with shorter maturity can apply for these IRFC bonds.
A K Capital Services Ltd, SBI Capital Markets Ltd, and ICICI Securities Ltd are the Book Running Lead Managers. Indian Bank is the Trustee.