After Rural Electrification Corporation (REC), Power Finance Corporation (PFC) and India Infrastructure Finance Company (IIFCL), Housing and Urban Development Corporation (HUDCO) Tax Free bonds, another Government-controlled company – Indian Railway Finance Corporation (IRFC), is issuing tax-free bonds between January 21 and January 29, 2013.
[note color=”#ffc600″]Update: The date for IRFC Tax free bonds have been extended till February 8, 2013[/note]
As for most tax free bonds, these are good for investors in high income tax bracket of 20% and 30%. Today the maximum rate offered by bank fixed deposit is 9.5%. This translates into a post tax return of 7.82% for 20% tax slab and 6.8% for 30% tax slab. This is lower than IRFC’s 10-year and 15-year tax free bonds.
Along with the above, it suits investors who want regular income from interest payment and have low risk profile.
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.
The company leases out the rolling stock to the Indian Railways for long periods on a cost plus margin basis. This helps it earn steady net interest margin of around 0.5 per cent. As on September 2012, IRFC’s long term loans and advances was Rs 59,778 crore, up from Rs 25,301 crore in March 2008.
Government support means that the company has low financial risk. It had zero non performing assets as of September 2012. The company posted a profit of Rs 481 crore during FY-12 and Rs 299 crore for the six months ended September 2012.
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I read that the last date for IRFC bond has been extended to 8th Feb
Thanks for the info. I have updated it in the post.
On last day I applied for HUDCO Bonds. Hope I get the allotment.
I think you would get allotment in Retail category. Unfortunately the demand is not very high in this category.
As an NRI, I agree that Tax free bonds still don't make much sense. I am better off investing in NRE Bank deposits.
Agreed SBI is offering 8.5%, while some banks offer 9% tax free on NRE Deposits. So tax free bonds are not that good investment for NRIs.
It seems HUDCO Tax free bonds were the best option in this tax free bond season.
Yes HUDCO Tax Free bonds are open for subscription till Jan 22. So rush in case you like to invest.