JNPT Tax Free Bonds – March 2013 – Review

The bonds market is already abuzz with Tax free bonds and now The Jawaharlal Nehru Port Trust (JNPT) is coming out with its tax free bonds for Rs 500 crores. Here are the details

JNPT Tax Free Bonds – Significant Points:

  • Offer Period: March 11 – March 15, 2013 (the offer can be pre-closed on full subscription)
  • Annual Interest Rates for Retail Investors:
    • 7.32% for 10 Years
    • The interest rates are 6.82% for HNIs, QIBs and corporate subscribers.
  • Price of each bond: Rs 1,000
  • Minimum Investment: 5 Bonds (Rs 5,000)
  • Max Investment Limit for Retail Investor: Rs 10 Lakhs
  • Reservation: 40% reserved for retail investors
  • Rating: BWR AAA
  • Allotment: First Come First Serve
  • Listing: Bonds would be listed on both NSE and BSE and will entail capital gains tax on exit through secondary market
  • You can apply for these bonds in the Demat or the physical format, but for trading you need to have them in the Dematerialized format.
  • Step Down Clause: The bonds will come with a step-down clause, according to which only the original allottee, who has subscribed under the retail category will receive the coupon of 7.32% depending on tenure. On sale or transfer, the benefit is lost and rates reduce to that applicable for other investors (6.82%).

Why you should invest?

  1. The bonds are secured to the full extent and JNPT is a Government of India undertaking
  2. The interest rates on future tax free bonds might be lower as RBI might moderate its policy rates further
  3. Reduction in interest rates would means an increase in the price of bonds thus giving capital gains

Why you should not invest?

  1. The interest rate offered by PPF is 8.8% tax free. You should exhaust your maximum PPF limit of Rs. 1 Lakh before you look for tax free bonds
  2. Even if you want to invest in Tax Free Bonds – HUDCO Tax Free Bonds are better option. If you are not comfortable with HUDCO rating you can go with PFCREC or IRFC Tax Free bonds which is offering 6 basis points more for 10 years tenure.
  3. If you are not in higher tax slab of 20% or more
  4. These bonds don’t make much sense for NRIs as they can get better returns on NRE fixed deposits with banks that offer rates of around 9 per cent, tax-free

JNPT Tax Free Bonds – Who should apply?

As I said above, I don’t know why anyone should opt for these bonds. HUDCO Tax Free Bonds are better option.

About JNPT:

Jawaharlal Nehru Port Trust (JNPT) is a Govt. of India.  JNP is the biggest container handling Port in India, handling around 60% of the country’s containerized cargo, crossing throughput. In its coveted role as the Hub Port on the Western Coast of India, JNP is ranked 24th among the top 100 Container Ports in the World.

JNPT Tax Free Bonds - March 2013
JNPT Tax Free Bonds – March 2013

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