Invest in PFC Infrastructure Bond to save tax

PFC_infrastructure_bond 2011There has been a series of Infrastructure launches one after the other. First in 2011 was IFCI and now its Power Finance Corporation (PFC) Infrastructue Bonds. You can invest in the same upto Rs. 20,000 to save tax. Below are the details of the same.

Rating“AAA/Stable” from CRISIL and “AAA with stable outlook” from ICRA
Face ValueRs. 5,000/- per bond
Minimum ApplicationRs. 5,000/- (i.e. 1 Bond)
Issue ScheduleIssue Open Date : September 29,2011

Issue Close Date : November 04, 2011

Options for Subscription1234
Frequency of Interest PaymentAnnualCumulativeAnnualCumulative
Coupon (% p.a.)8.50 % p.a. (Annual compounding) 8.50 % p.a.8.75 % p.a. (Annual compounding)8.75 % p.a.
 Maturity AmountRs. 5,000 Rs. 11,305 Rs. 5,000 Rs. 17,596 
Tenor10 years10 years 15 years 15 years
Maturity DateDecember 2021 (Tentative) – 10 years from date of allotmentDecember 2026 (Tentative) – 10 years from date of allotment
Buyback optionYesYesYesYes
Lock-in period5 years from the deemed date of Allotment
Deemed Date of AllotmentTo be decided
Issuance & TradingBonds shall be issued both in dematerialised form and physical form. However, trading allowed only in dematerialised mode after the expiry of Lock-in Period of 5 years


Should you invest in PFC Infrastructure bond 2011?

Rate of interest for PPF is 8% while in IFCI Bond you can lock-in your investment for 15 years at 8.75% interest. I think its the right time to invest in PFC Infrastructure bonds.

Your returns would depend on the tax bracket you are. For details on the same Click here.

  • If you are in 30% tax bracket your annual return would be 15.3% per annum
  • while for 20% tax bracket your return would be 12.8% and
  • for 10% tax bracket the returns would be 10.6%

I think its a decent return and its recommended to lock-in in such tax saving instruments at this high interest rate period.

Some significant points about investing in PFC Infrastructure Bonds:

  • No TDS would be deducted in these bonds.
  • This would be listed on BSE and you can sell your bonds in secondary market at the end of 5 years
  • The bonds shall be issued in both Demat and physical mode
  • The maximum tax benefit you can get from this bond is Rs 20,000 under section 80CCF and this is in addition to the 1 Lac limit under 80C.
  • These bonds may be mortgaged or pledged to avail the loans after the lock in period.

To Conclude:

I suggest everyone in the higher tax bracket to subscribe to the Infrastructure bonds. You may subscribe to this PFC bond or wait for other institutions to issue these kinds of bonds. But by the end of this financial year you must opt to save tax on additional Rs 20,000!

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