Public sector undertaking, Rural Electrification Corporation (REC), has launched its Long Term Infrastructure Bonds. These bonds offer a tax benefit under section 80CCF. Investments in long term infrastructure bonds provide investors a maximum tax exemption limit of Rs. 20,000 under section 80CCF, over and above what is available under section 80C
Rural Electrification Corporation was recently categorized as an Infrastructure Finance Company by the Reserve Bank of India. With its public issue of infrastructure bonds, the company plans to raise Rs 50 crores. The issue has a greenshoe option, in case of over-subscription, to issue additional bonds. The bond issue opened on 12th January 2011 and would be available for subscription till 28th March 2011.
Key Features of the Issue
Ø Eligible Investors
Resident Indian individuals and HUFs only.
Ø Credit Rating
The bonds have been rated ‘AAA /Stable’ by CRISIL, ‘CARE AAA’ by CARE, ’LAAA’ by ICRA and ‘AAA (IND) by Fitch.
Ø Available in Demat as well as Physical Form
REC Infrastructure bonds are available in physical as well as in demat form. So even if you do not have a demat account you could still invest in these bonds.
Ø Minimum Application
The bonds come with a face value of Rs. 5000. Investors would have to make a minimum investment of two bonds. i.e. Rs. 10,000.
Ø Lock in period and Maturity
The bonds have a lock in period of five years, and a total maturity period of ten years. They will be listed on both the NSE and the BSE. Trading of the bonds would be permissible only after the initial lock in period.
Ø Series Available in the Bond Issue
There are two options available for investors in the REC issue
Series 1: Offers 8% annual interest and a buyback after 5 years.
Series 2: Offers 8.10% annual interest with no buyback.
Ø Application Process
Application forms for the issue could be obtained from any one of the empanelled arrangers of REC. For the list of available empanelled arrangers click on the link provided here: http://www.recindia.nic.in/download/REC_infra_bonds_brokers.pdf
Application Forms can be deposited with all branches of UBI, IDBI & designated branches of HDFC & Canara Bank. Click below for a list of designated branches. http://www.recindia.nic.in/download/REC_infra_bonds_desig_branches.pdf
REC Issue at a Glance
The REC infrastructure bond, as opposed to other bonds issued earlier, provides investors only an annual interest option. No cumulative interest option is available. If you do invest in these bonds, you could claim your tax deduction under section 80CCF and utilize the annual interest earned to invest in other investment avenues. Annual interest is paid out through ECS facility, at par cheques or Demand Drafts, as per the investor’s choice.
Written by Ramya Ramachandran
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