About the Issue
Rural Electrification Corporation (REC) has come up with the infrastructure bond issue for the financial year 2011-2012. The Issue Opened on December 19, 2011 and it is expected to Close on February 10, 2012.
This infrastructure bond issue is very attractive to the investors. The interest rate is 9.15% for the 15 year bonds and 8.95% for the 10 years bonds.
15 year bonds have buyback option after 7 years whereas the buyback option is only 5 years for the 10 year bonds.
Bond Options available
A detailed comparison of the options available is given in the table below.
Source: REC Website
Recommendation
Our recommendation is to subscribe to the 15 year, Annual paying bond and also apply for the buyback option in the bond. 9.15% is high interest and this bond gives you the opportunity to lock in high rate of interest. The bond will get listed in both NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) after the mandatory lock in of 5 years. If the interest rate decreases after the lock-in phase investors would be able to sell these premium bonds at higher than the face value.
Minimum Application
The minimum application is 1 bond or Rs 5,000. We would recommend investor to exhaust the entire 20,000 of the 80 CCF limit in this bond.
Interest on Application Money
Our recommendation is to apply for this bond as early as possible, as the REC is giving investors Interest on Application Money at the rate of interest applicable to the bond, this is better than IDFC which did not have this benefit to the investors. The Interest on Application Money will be paid on the 1st interest payment date which will be 15th February 2013.
Safety
REC is a government company and has been awarded the highest rating by the rating firms. However these particular bond issue is unsecured, but the investors can take assurance by the fact that the government will not let the company fail. Also the company is well managed and has been profitable for a long time.
Rural Electrification Corporation (REC) has come up with the infrastructure bond issue for the financial year 2011-2012. The Issue Opened on December 19, 2011 and it is expected to Close on February 10, 2012.
This infrastructure bond issue is very attractive to the investors. The interest rate is 9.15% for the 15 year bonds and 8.95% for the 10 years bonds.
15 year bonds have buyback option after 7 years whereas the buyback option is only 5 years for the 10 year bonds.
Bond Options available
A detailed comparison of the options available is given in the table below.
Options | I | II | III | IV |
Interest Payment Frequency | Cumulative | Annual | Cumulative | Annual |
Coupon (% p.a.) | 8.95% p.a. (Annual Compounding) | 8.95% p.a. (payable annually) | 9.15% p.a. (Annual Compounding) | 9.15% p.a. (payable annually) |
Tenor | 10 (Ten) years | 10 (Ten) years | 15 (Fifteen) years | 15 (Fifteen) years |
Buyback option | At the end of 5 yrs+ 1day | At the end of 5 yrs +1 day | At the end of 7 yrs + 1 day | At the end of 7 yrs + 1 day |
Interest Payment date | At the time of maturity | 15th February every year | At the time of maturity | 15th February every year |
Maturity amount in case of buy back option | ||||
Buyback Date | 16 February 2017 | 16 February 2017 | 16 February 2019 | 16 February 2019 |
Maturity Amt. after 5 yrs + 1 day | Rs.7677/-* | Rs.5000/- | Not Applicable | Not Applicable |
Maturity Amt. after 7 yrs + 1 day | Not Applicable | Not Applicable | Rs.9231/-* | Rs.5000/- |
Maturity Date / Maturity amount in case of without buy back option | ||||
Maturity Date | 15 February 2022 | 15 February 2022 | 15 February 2027 | 15 February 2027 |
Maturity Amt after 10 yrs | Rs.11783/-* | Rs.5000/- | Not Applicable | Not Applicable |
Maturity Amt after 15 yrs | Not Applicable | Not Applicable | Rs.18592/-* | Rs.5000/- |
Lock-in period | 5 years from the deemed Date of Allotment | |||
Recommendation
Our recommendation is to subscribe to the 15 year, Annual paying bond and also apply for the buyback option in the bond. 9.15% is high interest and this bond gives you the opportunity to lock in high rate of interest. The bond will get listed in both NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) after the mandatory lock in of 5 years. If the interest rate decreases after the lock-in phase investors would be able to sell these premium bonds at higher than the face value.
Minimum Application
The minimum application is 1 bond or Rs 5,000. We would recommend investor to exhaust the entire 20,000 of the 80 CCF limit in this bond.
Interest on Application Money
Our recommendation is to apply for this bond as early as possible, as the REC is giving investors Interest on Application Money at the rate of interest applicable to the bond, this is better than IDFC which did not have this benefit to the investors. The Interest on Application Money will be paid on the 1st interest payment date which will be 15th February 2013.
Safety
REC is a government company and has been awarded the highest rating by the rating firms. However these particular bond issue is unsecured, but the investors can take assurance by the fact that the government will not let the company fail. Also the company is well managed and has been profitable for a long time.
Tax Benefits
Under section 80CCF, Rs 20,000 per year invested in long term infrastructure bonds shall be deducted in computing the taxable income. This is over and above Rs 1,00,000 tax benefit available under section 80C, 80CCC and 80CCD.
So investors should take the opportunity to invest in the bond.
Taxability of Interest
The interest received in these bonds will be taxable at the personal rate.
TDS would be done for the physical format, however no TDS is applicable for demat form.
Please note as per the current tax laws, TDS would be done only if the amount of interest is more than Rs 2,500/- per year, so for an investor who is investing only Rs 20,000 in the bond, TDS should not be a concern.
Disclaimer: Bonds and equities are not risk free investment, there is risk of loss to the capital when you invest in such securities. This article should not be taken as recommendation, please consult your financial advisor/financial planner before doing any investment. Any loss suffered by an individual (non client) owing to the investment in such securities is because of their own decision and Moneyplant Financials doesn't take responsibility for it.
0 comments:
Post a Comment