Few days back, NTPC, a GOI’s Maharatna enterprise, came out with the issue of tax-free bonds for the year 2015-16 and the response was record breaking. The subscription was opened on 23rd September and had to run till 30th September but was pre-closed on the first day only because against the total subscription of Rs.700 crore, the total bids received were Rs.7,700 crore. By the end of the first day, the issue was oversubscribed by 11.04 times of the base issue size of Rs.400 crore and 6.31 times of the overall issue size of Rs.700 crore. Surprisingly, the retail portion of the issue was also oversubscribed by 6.60 times, reflecting the huge confidence of rate cuts in the near future.
Read More: NTPC Tax-Free Bonds 2015 Issue Review
Cueing from the success of NTPC tax-free bonds, another Government enterprise, Power Finance Corporation (PFC) is coming out with its tax-free bonds for fiscal year 2015-16 on 5th October, 2015. Earlier in July, Government has permitted seven state-run entities including NHAI and RFC to raise funds up to Rs.40,000 through tax-free bonds in current fiscal year. PFC has also got placed in the list with the permission to issue tax-free bonds worth Rs.1,000 crore. The details of the PFC Tax-Free Bonds 2015 are as follows.
About Power Finance Corporation (PFC) Ltd.
Power Finance Corporation (PFC) is a Navratna Company of GOI and a leading power sector public financial institution and a non-banking financial company providing fund and non-fund based support for the development of the Indian power sector. The company offers various financial products namely Project Term Loan, Lease Financing, Direct Discounting of Bills, Short Term Loan, and Consultancy Services etc. for various Power projects in Generation, Transmission, and Distribution sector as well as for Renovation & Modernization of existing power projects.
PFC Tax-Free Bonds 2015 Issue Features
- Offer Period starts from October 5th and would end on October 9th, 2015 but can be pre-closed on full subscription.
- PFC Tax-Free Bonds are rated AAA by CRISIL, ICRA and CARE.
- Annual Coupon Rates for Retail Investors are 7.36% for 10 Years, 7.52% for 15 Years and 7.60% 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 PFC 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
- PFC 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.
- Unlike NTPC tax-free bonds, investors of PFC tax-free bonds can hold in DEMAT as well as physical form also.
- For more information download the PFC Tax-Free Bonds 2015 Prospectus HERE.
PFC Tax-Free Bonds Annual Yield
Category wise bifurcation of PFC Tax-Free Bonds 2015
How to Apply/Invest in PFC Tax-Free Bonds?
Unlike NTPC Tax-Free Bonds, PFC Tax-Free Bonds will also be issued in Physical Form i.e. you can subscribe with either Physical or Demat mode.
Should You Invest in PFC Tax-Free Bonds 2015?
There are few negative as well as positive things which investor must know before investing in PFC Tax-Free Bonds:
- First of all, the company is a Government Entity, thus there in no doubt in the safety of your investment.
- The annual yields are attractive as compare to other investment option i.e. Fixed Deposit.
- Domestic Credit Ratings Agencies CARE, CRISIL and ICRA have given the highest possible ratings to PFC tax-free bonds.
- International Credit Ratings Agencies have however given modest ratings such as Moody’s, Fitch and Standard and Poor’s have given ratings of Baa3, BBB- and BBB- respectively.
- For the longer tenure of 15 to 20 years, stock market and Mutual funds tends to give better returns than tax-free bonds.
Conclusion: As I have already said while review NTPC Tax-Free Bonds, that the inflation rate is in control and market outlook for the longer term looks promising. Indian Economy may see a growth rate of 8% surpassing China growth rate of 7.5%.
Further, the returns of tax-free bonds are linked to 10 year G-Sec benchmark yield which are currently quoting interest rates of 7.70% and if RBI eases the policy rates than the G-Sec yield will fall below from 7% which would appreciate the market price of tax-free bonds by 8% to 10%.
Thus for the investors falling in the higher tax-bracket of 20% and 30% can look these tax-free bonds as a better investment product. For the investors falling in the lowest tax-bracket, the current interest rate of FD looks bit higher i.e. 0.25 bps to 0.50 bps but with the inflation falling down, the rates of FD may also fall down in the coming years.
Witnessing the turmoil in the stock market, investors having surplus money with no certain use can invest in PFC tax-free bonds 2015 for better and safe returns for longer period.