NHAI (National Highways Authority Of India), a Government of India company is issuing its Tranche II of Tax Free Bond. It would offer coupon rate up to 7.69% for retail investors depending on tenure. You can choose between tenure of 10 and 15 Years. The bond issue would be open for subscription for February 24 to March 1, 2016.
NHAI is autonomous agency of Government of India and is responsible for the development, maintenance and management of National Highways entrusted to it and for matters connected or incidental thereto.
Salient Features: NHAI Tax Free Bonds 2016
- Offer Period: February 24 to March 1, 2016 (the offer can be pre-closed on full subscription)
- Annual Interest Rates for Retail Investors: 7.29% for 10 Years and 7.69% for 15 Years
- The interest rates are 0.25% less for HNIs, QIBs and corporate subscribers.
- 40% of issue is reserved for Retail Investors
- Price of each bond: Rs 1,000
- Minimum Investment: 5 Bonds (Rs 5,000)
- Max Investment Limit for Retail Investor: Rs 10 Lakhs
- Date of first Interest Payment: October 1, 2016 (prorated) and then October 1 every year
- Can be applied both in Physical and Demat Form
- Credit Rating: “CRISIL AAA/Stable” by CRISIL,“CARE AAA” by CARE, “IND AAA” by IRRPL and “[ICRA] AAA” by ICRA.
- Allotment: First Come First Serve
- Listing: Bonds would be listed on BSE and will entail capital gains tax on exit through secondary market
- Tax/TDS: As these are tax Free Bonds so no tax is to be paid and there is no TDS on interest
Also Read: PPF – A Must Have Investment
NHAI Tax Free Bond – Interest Rate:
The NHAI 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 7.69% interest on deposit a person in 30% tax bracket should actually get pre tax return of 11.13%.
Who should invest?
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?
Why you should invest?
- Almost “NO” credit risk. The bonds are rated “AAA” and the company is owned by Government of India. The bonds are secured to the full extent.
- For retail investors, the interest offered is higher than the offers on Tax free bonds in Secondary Market.
- Good for investors in the tax bracket of 20% or higher looking for safe and regular income for long duration.
- There are chances of further rate cut by RBI. If it happens there would be capital appreciation in the bond price.
Why you should not invest?
- PPF and EPF/VPF offer tax free interest rate of more than 8.7%. So you should first exhaust those options especially if you are not looking for regular income.
- If you are in 10% tax bucket or pay no taxes, you would be better off with banks Fixed deposits or debt mutual funds.
Also Read: Highest Interest Rate on Recurring Deposits [comparing 41 banks]
How to Apply?
The bonds can be issued both in physical and demat form.
You can apply online through ASBA or download the Physical Form from the Edelweiss Financial Services and follow the instructions.
NHAI Tax Free Bonds 2016 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.
Previous Tax Free Bond were over-subscribed before the formal closing date, 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.
1 thought on “7.69% NHAI Tax Free Bond – February 2016 – Should You Invest?”
Those who are into higher tax bracket this is a suitable option for asset diversification.. And as Indian economy is a down trained interest rate 7.69 tax free interest rate is very attractive.