Infrastructure Development Finance Company (IDFC) has launched its second tranche of public issue of long term infrastructure bonds, under section 80CCF. Section 80CCF provides tax payers an additional tax deduction to the extent of Rs 20,000 for investments in long term infrastructure bonds. This deduction would be over and above the Rs. 1, 00,000 existing under section 80C.
The IDFC Public Issue-Tranche 2
In September 2010, IDFC came up with its first instalment of public issue, with 4 series of bonds. It managed to raise around Rs. 471 crores in the issue. This second instalment of the public issue is a follow up of the first one and is open from January 17, 2011 to February 4, 2011, for investors.
Key Features of the Issue
Ø Who Can Apply
The bond issue is applicable only for resident individuals and HUFs. NRIs, FIIs and OCBs are not eligible to participate in the issue.
Ø Credit Rating
The bond has been assigned a “LAAA” rating by ICRA and an “AAA” rating by Fitch. The ratings speak of IDFC’s comfortable liquidity position, sound asset quality and timely servicing of debt.
Ø Demat Account not a necessity
The bonds will be issued in both dematerialised and physical form. It is therefore not necessary for investors to have demat accounts.
No TDS shall be deducted on the interest received if the bonds are kept in demat form. There will however be TDS for bonds kept in physical form when interest exceeds Rs. 2,500 p.a.
Ø Minimum Application
The bonds come with a face value of Rs. 5,000. The minimum subscription amount is Rs. 10,000, which means, investors would have to subscribe to a minimum of two bonds per application.
Ø Lock-in Period and Maturity
The bonds have a minimum lock in period of five years, and a maturity of ten years. They would be listed on the BSE as well as the NSE. Investors can trade their bonds after the initial lock in period of five years. Loans can be obtained against the bonds, by pledging them after the lock-in period.
Ø Different Series in the Bond Issue
There are only two series offered in this issue, unlike the first issue where four options were offered.
Series 1: Offers 8% returns annually.
Series 2: Offers 8% cumulatively.
Both series allow a buy back route after the initial lock in period of five years.
Ø Application Process
Application forms for the issue could be obtained and submitted at these collection centers.
· HDFC Bank
· ICICI Bank
· Kotak Mahindra Bank
· IDBI Bank
· Axis Bank
Alternatively online applications could be submitted, if you have an online trading account with any one of the above banks.
So should you invest in Long Term Infrastructure Bonds?
Long Term Infrastructure Bonds, may probably be yielding relatively lower returns when compared to various other investment options. However one must remember that, when the tax benefit under section 80CCF is considered, the effective net yield on maturity increases. Nevertheless, this investment is best suited for individuals who fall in the highest tax bracket.
IDFC Issue at a glance
*Source: IDFC Tranche 2- Prospectus
Written by Ramya Ramachandran
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