Share market is witnessing high volatility. One day surges, other day plunges and this saga of super volatility is still not over. On 29th September, RBI will review its monetary policy and the market is expecting a rate cut of 50 bps (0.50%), if everything goes as per expectation, the market would surf smoothly else there would be another nosedive in the market.
The another safe investment option with moderate returns are debt mutual funds but recently JP Morgan have restricted redemption of two of its debt schemes viz. Short Term Income Fund and India Treasury Fund, which has loosen the confidence of investors in debt funds.
Amid volatile share market, NTPC is issuing its tax-free bonds which would fetch returns up to 7.62% per annum. The tenures of bond are 10 years, 15 years and 20 years. The issue will start on 23rd September and would remain open for 7 days till 30th September. Let’s dive into the details of first issue of NTPC tax-free bonds for 2015-16.
About NTPC Ltd.
NTPC is one of the Maharatna companies of Government of India engaged in the business of generation of electricity and various other complementary activities. NTPC is the largest power generation company of the India, fulfilling around 23% of the total power requirement of India. As of date, GOI stake in NTPC is around 75%.
NTPC Tax-Free Bonds 2015 Features
- Offer Period starts from September 23rd and would end on 30th, 2015 but can be pre-closed on full subscription.
- NTPC Tax-Free Bonds are rated AAA by CRISIL, ICRA and CARE.
- Annual Coupon Rates for Retail Investors are 7.36% for 10 Years, 7.53% for 15 Years and 7.62% for 20 Years.
- Annual Coupon Rates are 0.25% less for non-retail investors i.e. HNIs, QIBs and corporate subscribers.
- The interest would be paid yearly with NO TDS deduction.
- Non-Resident Indians (NRIs) can too invest in NTPC Tax-Free bonds but on non-repatriation basis only.
- Price of each bond is Rs.1,000
- Minimum Investment is as low as Rs.5,000 i.e. 5 Bonds and further in multiple of 1 bond thereof.
- Maximum Investment Limit for Retail Investor is capped at Rs.10 Lakhs
- Allotment would be based on First Come First Serve
- NTPC Tax-Free Bonds would be listed on BSE and NSE and will attract capital gains tax on exit through secondary market.
- No tax deduction for the investment amount can be claimed u/s 80C.
- These tax-free bonds can only be held in DEMAT form i.e. no physical form.
- For more information download the NTPC Tax-Free Bonds 2015 Prospectus HERE.
NTPC Tax-Free Bonds Annual Yield
Category wise bifurcation of NTPC Tax-Free Bonds 2015
How to Apply/Invest in NTPC Tax-Free Bonds?
This time all the upcoming tax-free bonds including NTPC Tax-Free Bonds will be issued in demat form only, so you will have to apply through demat account.
Should you Invest in NTPC Tax-Free Bonds 2015?
Currently, India is growing at very fast pace. The inflation rate is in control and the CPI of last few months have come down sharply in comparison to last year. Government is also looking to clear GST bill and land acquisition bill in the winter session and if everything goes smooth and GST gets implemented from 1st April next year, than Indian economy would become the first choice for foreign investors and will gradually surpass Chinese economy.
As the Economy of India strengthens, RBI would decrease the policy rates bit by bit and in my opinion, the 10 year G-Sec benchmark yield would come down to 7% in the next one year which is as of date stands at 7.70% p.a. This gradual reduction would eventually result in appreciation of 8% to 10% in the market price of these bonds.
Tax-Free bonds offers a moderate returns for a very long-tenure. Since NTPC is a GOI enterprise, there is no doubt regarding the safety of the investment but the rate of returns is not much encouraging.
Investor’s having no taxable income or falls in the lowest tax slab of 10% may stay away from these tax-free bonds and invest in bank fixed deposit because the post-tax returns of FD, considering 8.50% p.a., comes to 7.65%. Though the returns are almost similar but in terms of liquidity, FD scores over tax-free bonds because FD can be broken any time by paying small penalty but tax-free bonds cannot be liquidated as they are very rarely traded in the secondary market. Even if you are lucky and find the buyer, capital gain tax would eat out all your earnings.
Investor’s falls in higher tax slabs of 20% and 30% may find tax-free bonds more attractive as the post-tax returns of the FD is less than the returns offered by these Tax-Free Bonds. The effective yield on 7.36% 10-year tax-free bonds for an individual in the 30.9% tax bracket comes to 10.65%. Similarly, for 15 years it is 10.90% and for 20 years it is 11.03%, compared to that the post-tax yield on 8% FD is just 5.52%.
Conclusion: In the current scenario of rate cuts, investing in NTPC Tax-free bonds would be safest and tax efficient way to lock-in your money for a stable return for a longer period.