IIFCL - Tax Free Bonds
India Infrastructure Finance Company Limited (IIFCL), providing long term financial assistance to infra projects and wholly owned by the Government of India, has entered the debt capital market for the second time this fiscal, on 25th February 2013, with an issue of Tax Free Bonds of face value of Rs.1,000 each, in the nature of Secured Redeemable Non Convertible Debentures. Issue, closing on 15th March, has a size of Rs.6,331 crore, being the residual shelf limit. Bonds, rated AAA by CARE, ICRA and BWR, indicating highest degree of safety regarding timely servicing of financial obligations, are proposed to be listed on NSE.
The current bonds are being offered under two series with features as under:-
| Particulars | Series 1 | Series 2 | Series 3 |
| Tenor | 10 Years | 15 Years | 20 Years |
| Frequency of Interest Payment | Annual | Annual | Annual |
| Minimum Application Size | Rs.5,000 (5 Bonds) | Rs.5,000 (5 Bonds) | Rs.5,000 (5 Bonds) |
| In Multilpes of | Rs.1,000 (1 Bond) | Rs.1,000 (1 Bond) | Rs.1,000 (1 Bond) |
| Face Value (Rs/Bond) | Rs.1,000 | Rs.1,000 | Rs.1,000 |
| Issue Price (Rs/Bond) | Rs.1,000 | Rs.1,000 | Rs.1,000 |
| Coupon Rate (%) p.a. |
| ||
| 7.36% p.a. | 7.52% p.a. | 7.58% p.a. |
| 6.86% p.a. | 7.02% p.a. | 7.08% p.a. |
| Put / call Option | None | None | None |
*Individuals and HUFs can apply for a maximum of Rs. 10 lakh under retail category.
Bonds are to be issued both in physical and dematerialized form, hence a demat account is not necessary to buy these bonds. Also, the bonds do not have any lock-in period and carry the step-down feature, wherein retail investor will get a lower interest rate (applicable to other investors) if purchased from the secondary market (post-listing).
IIFCL’s 20 year (Series 3) bonds are comparable to 10.97% pre-tax return earned on other fixed income instruments, assuming the highest tax bracket of 30.9% for retail individuals. It is the only issue offering tax free bonds with the longest tenure of 20 years.
Considering the tax free income to be earned from the bonds, AAA rating and 20 year tenor (no other offer this long) of the bonds, along with likely falling interest regime scenario ahead, those looking for fixed asset allocation can subscribe to the series 3 bonds with tenure of 20 years.