Tax-free bonds have been always the best bet for investors. Now, there is even a bigger reason to lap them up. State-owned Power Finance Corporation is offering 8.92% interest rate on its (PFC) tax-free bonds for a period of 20 years.
When PFC Tax Free Bonds Oct 2013 issue is available? :
The PFC tax free bond issue will open from October 14 and run till November 15. Evaluating the response of the investors to the issue, the company may extend it or pre-close it.
Issue size of PFC Tax Free Bonds Oct 2013 issue :
Government has allowed PFC to garner fund up to Rs 5,000 crore through tax-free bonds this financial year. Out of the total, PFC has already mopped up Rs. 1,124.10 crore via private placement on August 30th. The balance fund is to be raised through this PFC tax free bond Oct 2013 issue, with the base issue size of Rs 750 crore and the green-shoe option of Rs. 3,125.90 crore.
Lock-in Period of PFC Tax Free Bonds Oct 2013 issue :
Though you have a lock in period in PFC tax free bonds, you have freedom to sell your bonds anytime after their listing on the stock exchange.
Investment benchmark for PFC Tax Free Bonds Oct 2013 issue :
The minimum investment requirement is Rs 5,000, that is, minimal 5 bonds of Rs. 1,000 face value each. For Retail Investors, the limit is at Rs. 10 lakhs, exceeding which they will be counted as HNIs and will be offered a lower rate of interest.
Open for all: :
PFC Tax free bonds are available for residents, Non Residential Indians (NRIs) and Qualified Foreign Investors (QFIs). NRIs can invest in the bonds on repatriation basis and on non-repatriation basis.
Rating of PFC Tax Free Bonds Oct 2013 issue :
This PFC Tax Free Bonds Oct 2013 issue issue has been rated AAA by three major credit rating agencies, namely, CRISIL, ICRA and CARE. The AAA rating indicates highest degree of safety regarding timely delivery of financial obligations.
Listing of PFC Tax Free Bonds Oct 2013 issue :
Bombay Stock Exchange will list these PFC tax free bonds. You have the option to apply for the PFC tax free bonds either in demat form or physical form what you like.
The PFC tax free bonds will be allotted and listed within 12 working days from the issue closing date. The successful allottees will get interest on their application money as per coupon rates, from the date of realization of application money up to one day prior to the deemed date of allotment, whereas unsuccessful allottees will receive interest @ 5% per annum on their refund money.
Categories of Investors and Allocation Ratio – :
There are four categories of classified investors and each one has a fixed percentage of the issue reserved for the allotment as follows:
Category I is for Qualified Institutional Bidders and 15% of the issue is reserved for them.
Category II is for Non-Institutional Investors and 20% of the issue is reserved for them.
Category III is for High Networth Individuals including HUFs, NRIs & QFIs and 25% of the issue is reserved for them.
Category IV is for Resident Indian Individuals including HUFs, NRIs & QFIs and 40% of the issue is reserved for them.
Coupon Rates of PFC Tax Free Bonds Oct 2013 issue : :
PFC offering is the highest as compared to other three companies, namely, REC, Hudco and IIFCL, who have opened their tax free bonds earlier. PFC tax free bonds have a coupon rate of 8.92% per annum, 8.79% per annum, and 8.43% per annum for 20 years, 15 years and 10 years respectively.
| Bonds | PFC Series 1 | PFC Series 2 | PFC Series 3 | II FCL Series 1 | II FCL Series 2 | II FCL Series 3 |
|---|---|---|---|---|---|---|
| Tenors | 10 years | 15 years | 20 Years | 10 years | 15 years | 20 years |
| Interest Payable | Annually | Annually | Annually | Annually | Annually | Annually |
| Coupon Rates (Retail Investors) | 8.43% | 8.79% | 8.92% | 8.26% | 8.63% | 8.75% |
| Coupon Rates (Retail Investors) | 8.18% | 8.54% | 8.67% | 8.01% | 8.38% | 8.50% |
| Equivalent Effective Taxable Yield (30.90% Tax Bracket) | 12.20% | 12.72% | 12.91% | 11.95% | 12.49% | 12.66% |
| Equivalent Effective Taxable Yield (30.90% Tax Bracket) | 12.20% | 12.72% | 12.91% | 11.95% | 12.49% | 12.66% |
| Equivalent Effective Taxable Yield 20.60% Tax Bracket) | 10.62% | 11.07% | 11.23% | 10.40% | 10.87% | 11.02% |
| Equivalent Effective Taxable Yield 10.30% Tax Bracket) | 9.40% | 9.80% | 9.94% | 9.21% | 9.62% | 9.75% |
It will become the last issue of PFC this financial year if the issue gets fully subscribed as happened to REC.
What makes PFC Tax Free Bonds Oct 2013 issue an attractive investment? :
Highest Coupon Rates – :
PFC Tax Free Bonds Oct 2013 issue is offering the highest interest rates of this financial year on tax-free bonds. This makes profitable investment for investors in the 30% or 20% tax brackets.
Drop in MSF Rate :
– RBI has reduced the MSF Rate by 50 basis points to 9% few days back. This is a sign that RBI will try to arrest the growth in overall interest rates as much as possible. In addition, the 10-year G-Sec yield has also come down from 8.68% to 8.46% in past few days. If this fall is not transitory and stays for longer period, the fall in the coupon rates of future tax-free bonds will occur.
Caveat :
Despite many positive signs, the financial performance of PFC is not that bright. State Electric boards are its primary borrowers and they have a reputation for not paying back to PFC. This nonpayment has made its share fall from Rs. 350+ during 2010-11 to below Rs. 100 this year. So this must be factored in before investing in this PFC Tax Free Bonds Oct 2013 issue.
However, higher interest rates, tax exemption and issuance from Government backed company make PFC Tax Free Bonds Oct 2013 issue a safe bet.
Bottomline: :
A person who has long term money which he would like to invest in a very safe avenue, this PFC Tax Free Bonds Oct 2013 issue is a best bet for him. When compared to bank FDs, this gives better post tax returns.
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