IDFC, REC, L&T Infra, SREI Infra, IFCI and PTC India Financial are your current options. Check the interest rate, rating and buyback terms to help make a decision. There is less chance of higher interest rate offers in this financial year
Raj Pradhan
Depending on your tax bracket you can save maximum of Rs6,180 by investing Rs20,000 in infrastructure bonds qualifying for Section 80CCF deduction. Make a decision based on current offerings of interest rates, ratings and buyback terms. There are variations for these three parameters in all the offers. Don’t pin much hope of better interest rates offered in March. The trend of interest rate is down.
The offers with ‘AAA’ rating are IDFC (Infrastructure Development Finance Company) and REC (Rural Electrification Corporation). IDFC (Tranche2) offers interest rate of 8.70% per annum (p.a.) for 10-year bonds, while REC will give 8.95% p.a. for the same tenure. The difference in the interest paid every year is only Rs50 for investment of Rs20,000. Going for either of the two is a good option, but REC is s better offer at this time for those looking for both safety and returns.
Both the bonds offer buyback option after five years. It means that in case market interest rates are higher than what these bonds currently offer, the customer can sell the bonds back to the company and reinvest the money in another investment earning higher interest. If the market interest rates after five years are down, the customer can remain invested in these bonds till the end of its term.
REC also offers 9.15% p.a. for tenure of 15 years with a buyback option after seven years. IDFC closes for subscription on 25 February 2012 while REC issue closes on 10 February 2012.
SREI Infrastructure Finance (SREI Infra) offers a coupon rate of 8.90% p.a. and 9.15% p.a. for 10 and 15-year term, respectively. Both the terms offers buyback after five years which is an advantage for customers going for a 15-year term. The subscription closes on 31 January 2012 and it enjoys a rating of ‘AA’. While most of these bonds offer minimum investment of Rs5,000, SREI Infra has a Rs1,000 bond and hence is helpful if someone wants to invest less than Rs5,000.
IFCI pays the highest interest amongst all of them. It pays 9.09% p.a. and 9.16% p.a. for 10 and 15 years, respectively. It offers buyback at the end of 5th and 7th year for tenures of 10 years and 5th and 10th year for 15-year bonds. Giving two options for buyback for each of the terms is an incentive for customers. IFCI bonds have rating of ‘A+’. The issue had closing date of 16 January 2012, but it has been extended to 8 February 2012.
PTC India Financial Services (PFS) offers 8.93% p.a. and 9.15% p.a. for 10 and 15 years, respectively. It offers buyback every year after completion of five years for 10 years bond tenure and every year after completion of seven years for 15 years bond tenure. The buyback terms are certainly flexible. Even though the parent company PTC is a government promoted public-private partnership, PFS has been assigned only ‘an A+’ rating. The issue closes on 2 February 2012.
Even though these bonds appear in a demat account, there are restrictions for selling them in the secondary market within the lock-in period of five years.