IRFC (Indian Railway Finance Corporation), a Government of India company is issuing its Tax Free Bond. It would offer coupon rate up to 7.53% for retail investors depending on tenure. You can choose between tenure of 10, 15 and 20 Years. The bond issue would be open for subscription for December 8 to 21, 2015.
IRFC, fully owned by the Government, finances the acquisition of rolling stock such as locomotives, coaches and wagons ordered by the Ministry of Railways (MoR). The MoR and its related entities are IRFC’s sole clients. It had zero non performing assets as of March 2015. The company posted a profit of Rs 758 crore during FY15.
Also Read: PPF – A Must Have Investment
The IRFC Tax Free Bond offers the following interest rates. The interest would be paid every year.
The table also shows the effective interest rate for different tax slabs. For e.g. To earn post tax 7.53% interest on deposit a person in 30% tax bracket should actually get pre tax return of 10.90%.
As per rules, the interest rate offered on Tax-free bonds are linked to yield on Government Bonds. Companies with AAA rated tax free bonds can offer up to 55 basis points lower to the G-Sec yield to retail investors and 80 basis points lower for other investors.
Tax Free Bonds are suited for people in the tax bracket of 20% or higher who are looking for regular and safe income. In case you do not want regular income you should first exhaust your Rs 1.5 lakhs PPF limit where the returns are 8.7% and tax free. Salaried employees should opt for VPF before looking at tax free bonds. Both the above options have higher returns, tax free and partial exit options after 5/6 years.
Also Read: What is the Maximum Income Tax You can Save for FY 2015-16?
Also Read: Highest Interest Rate on Recurring Deposits [comparing 41 banks]
The bonds can be issued both in physical and demat form. For applying through Demat Account, go to the IPO/NCD/Bonds offer tab of your Demat account and fill out relevant details.
You can also download the Physical Form and follow the instructions.
IRFC Tax Free Bonds 2015 suits investors who are looking for safe, regular income and are in the higher tax bracket. A few more PSUs are going to issue tax free bonds in coming days. The interest rate is expected to go marginally downward.
NTPC/PFC/REC Tax Free Bond were over-subscribed multiple times on the first day itself, so if you want to subscribe these bonds, invest early as these would be grabbed very soon and may close for subscription if it gets fully subscribed before closure date.
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