Infrastructure bonds are making a splash these days just in time before the end of the tax-saving season in March. At present, issues are opened for subscription from Infrastructure Finance Corporation of India (IFCI), Rural Electrification Corporation (REC), PTC India Financial Services and SREI Infrastructure Finance. IDFC has already lifted up Rs. 533 Crore through its issue of infrastructure bonds that stopped up for subscription in Dec, 2011.
The company is expected to come up with its next tranche of these bonds soon. You can put in up to Rs 20,000 in these bonds and claim deduction in tax under Section-80CCF. You can save as much as Rs. 6,180 by making investment in these bonds, if you are in the uppermost tax bracket.
"The Rs. 20,000 limit for investment in infrastructure bonds is in addition to the 1 Lakh tax deduction limit available under Section-80C and hence, merits investment. You can choose an issuer of these bonds based on the credit rating, interest rates offered and the financial credentials of the company", says K. Ramalingam, Director and Chief financial planner at Holistic Investment Planners.
The General Essentials
All issues have time-period of 10 to 15 years. There is an alternative of buy-back, at the end of 5 years from the date of allocation, and liquidity will also be accessible by listing the bonds on the stock exchange once the obligatory lock-in time-period of five years is over. Though the buy-back option for the 10 year bonds is after 5 years, for the 15-year facility, it comes after a period of 7 years. All of them offer yearly and growing options of interest payment for both maturity periods.
You can select to apply for only the 10 year bonds or only the 15 year bonds or a blend of the two. You can apply in the demat mode, if you have a demat account, besides you can even prefer for physical certificates. You should offer information of your demat account all along with a photocopy of your Permanent Account Number (PAN) card and a cheque, If you are applying in the demat mode. But, if you are going to invest in physical form, you should affix a photocopy of your residence proof, as well.
The face value of a single bond is Rs. 5,000 and an individual have to make an application of one bond and in multiple of one bond afterward. There is no upper-limit on the sum of the amount that you can invest. The face value is Rs. 1,000, only in the case of SREI Infra and an individual can apply for at least one bond.
Selecting One Over The Other
The issues on proposal vary in rates of interest, ratings and buy-back alternatives subsequent to the lock-in period. IFCI pays the maximum interest among all of them. For a period of 10 years, IFCI pays 9.09 percent whereas REC pays 8.95 percent, PTC India Financial pays 8.93 percent and SREI Infra Finance pays 8.9 percent. For the period of 15 years, IFCI pays 9.16 percent whereas all others pay 9.15 percent. Although REC and IFCI are possessed by the government, PTC India Financial Services parent - PTC, is a government supported public private enterprise and SREI Infra is a private player.
In terms of rankings, REC scores as it has an AAA rating that shows maximum degree of protection in terms of timely refund of principal and interest. IFCI, PTC India Financial Services and SREI Infra have a lesser rating as compared to REC.
IFCI bonds benefits from 'CARE A+' by CARE, 'LA' by Icra and 'BWR AA-' by Brickwork Ratings. PTC India Financial Services has been given an 'A+' ranking by CARE and ICRA. SREI infra bonds benefits from a ranking of CARE 'AA'.
Since REC and IFCI are owned by the government, the margin of safety is high. Investors could choose from either of the two. For individuals who are all set to divide the amount in 2 issues, there is a different approach. "If you want the best of high rates as well as high rating, invest Rs. 10,000 in the 10 year option of IFCI at 9.09 percent, and Rs. 10,000 in the 15 year option of REC at 9.15 percent.
Though, not all monetary planners would recommend you to divide investments as the amount of Rs. 20,000 is small and would make it hard to track over a five year time-period.
Finally, even if you are going through a shortage of finances and cannot invest at this time, do not lose optimism as you can also invest in any of the multiple issues till the end of the financial year.
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