Invest in REC Infrastructure Bond to save tax

rec infrastructure bondThere has been a series of Infrastructure launches one after the other.  L&T & IDFC had successfully closed their infrastructure bond isues  and not its IFCI and REC (Rural Electrification Corporation Limited) Infrastructue Bonds. You can invest in the same upto Rs. 20,000 to save tax. Below are the details of the same.

Face ValueRs. 5,000/- per bond
Minimum ApplicationRs. 5,000/- (i.e. 1 Bond)
Issue ScheduleIssue Open Date : December 19,2011

Issue Close Date : February 10, 2012

Options for Subscription1234
Frequency of Interest PaymentCumulativeAnnualCumulativeAnnual
Coupon (% p.a.)8.95 % p.a. (Annual compounding) 8.95 % p.a.9.15 % p.a. (Annual compounding)9.15 % p.a.
 Maturity AmountRs. 5,000 Rs. 11,305 Rs. 5,000 Rs. 17,596 
Tenor10 years10 years 15 years 15 years
Buyback optionAt the end of 5 yrs+ 1 dayAt the end of 5 yrs+ 1 dayAt the end of 7 yrs+ 1 dayAt the end of 7 yrs+ 1 day
Buyback Date16 February 201716 February 201716 February 201916 February 2019
Maturity Amount (5 Yrs Buyback)Rs. 7,677Rs. 5,000NANA
Maturity Amount (7 Yrs Buyback)NANARs. 9,231Rs. 5,000
Lock-in period5 years from the deemed date of Allotment
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 REC Infrastructure bond 2011?

Rate of interest for PPF is 8.6% while in REC Bond you can lock-in your investment for 15 years at 9.15% interest. I think its the right time to invest in REC 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 15.7% per annum
  • while for 20% tax bracket your return would be 13.15% and
  • for 10% tax bracket the returns would be 11.0%

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 REC 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 REC 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!

Download REC Application Form

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