Close on the heels of the IDFC Infrastructure bonds – L&T is also issuing infrastructure bonds beginning October 15th 2010, and closing on November 2 2010.
L&T Bonds: Tax Saving Infrastructure Bonds
These are classified as infrastructure bonds under Section 80 CCF which means that investing in them will reduce your taxable income by Rs. 20,000.
This increases your effective yield because along with the interest you earn on these infrastructure bonds, you save on tax as well.
These bonds are good for a maximum of Rs. 20,000 as far as the tax saving aspect is concerned, so if you buy bonds worth Rs. 30,000 and nothing else, even then the maximum you can reduce from your taxable income is Rs. 20,000 because that is the cap on tax benefits on infrastructure bonds.
L&T Infrastructure Bonds Features
There are 4 series of L&T Bonds, and though these bonds have a term of 10 years, there is an option of a buyback after 5 years or 7 years.
The interest rates, and effective yields of different plans are shown below:
| Series | Tax Bracket | 1 | 2 | 3 | 4 |
| Face Value | —- | Rs. 1,000 | Rs. 1,000 | Rs. 1,000 | Rs. 1,000 |
| Interest Payment | —- | Annual | Cumulative | Annual | Cumulative |
| Interest Rate | —- | 7.75% | 7.75% | 7.50% | 7.50% |
| Maturity | —- | 10 years | 10 years | 10 years | 10 years |
| Buyback in years | —- | 7 years | 7 years | 5 years | 5 years |
| Yield on Buyback | 30.9% | 15.23% | 13.59% | 17.20% | 15.75% |
| 20.6% | 12.31% | 11.36% | 13.42% | 12.58% | |
| 10.3% | 9.86% | 9.44% | 10.23% | 9.86% |
L&T Bonds Minimum Investment
The minimum investment needed for you to invest in these bonds is Rs. 5,000 because you have to apply for a minimum of 5 bonds, and the face value of each bond is Rs. 1,000.
Open and Close Date
Subscription opened on October 15th, and will close on November 2nd 2010.
Credit Rating
The L&T bonds have been rated CARE AA+ by CARE and LAA+ by ICRA which indicate high credit quality and that the rated instruments carry low credit risk.
How can you invest in the L&T Infrastructure bonds?
You can invest in these bonds either in the physical form or electronically through brokers like ICICI Direct. You can buy a form through one of the several agents across the country and invest in it through them as well.
Here is a list of banks listed on their website that can give you more information as well:
- Axis Bank
- DBS Bank
- HDFC Bank
- HSBC Bank
- ICICI Bank
- IDBI Bank
- ING Bank
- SBI Bank
They also have this cool link on their special website for this bond where you can enter in your contact details and they will contact you and help you.
If any of you do decide to contact them then I am really interested to know your feedback because I tried to get in touch with the numbers given in the IDFC website, and tried at least 10 times to no avail. I’d like to know if this is any better.
Tax on interest earned from the L&T Infrastructure bond
The interest itself is not tax free. It’s only the Rs. 20,000 you get reduced from your taxable salary that helps save tax.
L&T Infrastructure bonds to list on NSE after 5 years
The Bonds are proposed to be listed on NSE, and can be traded after the initial 5 years lock-in period. After this lock-in period, the holders can also pledge the Bonds with banks for availing financial assistance.
You don’t need a demat account to invest in these bonds
L&T will offer you the option to hold the Bonds either in Dematerialized or Physical Certificate form.
NRIs can’t apply in the L&T Bonds
Non-resident investors including NRIs, FIIs and OCBs are not eligible to participate in the Issue.
Conclusion
These were some salient features of the L&T bond issue, and I hope you found this useful in order to make a decision on whether you want to opt for them or not. Keep in mind that IDFC has a similar issue running, and if you have already applied for that then you won’t get any additional tax benefit (over Rs. 20,000) by applying for this issue as well.
If you have any questions, leave a comment, and the community here will try to answer them for you.
sir,
pls let me know the full tax-saving benefit from L&T infrastructure bond for I T for
F/Y 2010-2011
Well, that bond issue is over now, so you can’t apply for it. There are other infrastructure bonds like IFCI which is currently open which allow you to reduce your taxable income by 20,000 over and above the Rs. 1 lakh and allow you to save on tax.
hi,i purchased l&t infra bonds worth rs.20000.I purchased through reliance money and i ve shared my icici demat account with them to tagged.Pls help me out when the bond is going to ba alloted and is there any site where i can check online..Thanks in advance
I don’t think there has been any news yet Purna. The IDFC bond have only been allotted last week, and they closed before this one, so I think there is still some time before allotment is made.
I will leave a comment here once I hear anything about allotment.
Can you please share the procedure to buy infrastructure bonds through reliance money de-mat account?
Invest in Share/Commodity/Currency Market and get Open Demat & Trading account
Contact: 9029058716
Regards,
Mayur,
Mumbai.
I am LIC agent how can I get agency for selling L @ T infrastructure Bond ?
Pls. help me.
I’m not sure how to do that Ajith – sorry about that.
I would like to know about the availability of cpitalgain tax savers schemes, supported by RBI or any Central Govt. assurance.
1. Interval of interest payment?
2. Lock in period?
3. Interest rate?
3. Rate of interest?
1) I think that date to apply for L&T Infrastructure Bonds has been extended ?, Perhaps, I had seen on CNBC Channel. If yes, what is the last date, please confirm.
2) Can I get download the form from your site.
1) Dinesh the earlier closing date was Nov 2nd which was then extended to Nov 15th, and I don’t think that has been extended any further.
2) It’ll probably do you more good to keep an eye out for future issues of infra bonds, as this one seems to be over.
Hey,
Almost 3 days left before this issue closes on 15th Nov, 2010. If you wish you apply for one feel free to call us at +91-9699-572-400.
Happy Investing & Happy Saving!!
Imran
In some of the links it is mentioned issue closes on 2Nd Nov. Whether it is 15th or 2nd?
It was initially till the 2nd, but they later increased the date to 15th Arun.
Hi,
I heard that LIC is expected to come up with an infra bond. Is it true? And if yes, will it be better than the present ones like L&T etc?
There have been news stories that have reported that LIC and even Rural Electrification Corporation (REC) plan to come out with these type of bonds later this year, and IDFC has itself has that they will come with another offer before the end of the fiscal, so there will be more issues.
The current issues haven’t got a very good response so the new issues might have a higher rate of interest, but that’s just speculation and guesswork at this point in time.
Hi,
after lock period, before maturity period, is it possible to sell bonds?
thanks,
veeresh.
When the bond lists after the lock in period – you will be able to sell it Veeresh.
I AM LIC AGENT ,HOW TO I GET AGENCY TO SELL THESE BONDS??PL ADVISE
Sorry Sanjay, I don’t know how it’s done….maybe someone else who knows more can answer your question.
I would like to know that in case of these infra bonda whether the interest received is taxfree or will it be taxed as per slab? And if cumulative option is chosen then maturity amount will be taxed or not.
Regards
Sachin J Sangle
The interest received is not tax free Sachin, and I think the maturity amount will also be taxed though I’m not sure about that.
I want to apply on line for L T infra bonds by paying on line by giving my demat account particulars . problem is my demat account is not linked online.
Did you try to contact any of the banks selling this to see what they had to say?
Hi,
i want L & T bond but i have not a demat a/C
pls help
You can get the bonds in physical form
As far as I know you will need the following documents for the paper form:
1. Filled up application form indicating that you want the physical option, and also the full bank details.
2. Self attested copies of the KYC documents – Proof of individual ids, proof of residence address, copy of PAN
3. Account payee cheques.
Hearing a romour about SBI infrastrusture Bond to be issued in Dec’10? Is that true? It will have similar tax benefit along with Interest exemption at the end of maturity? Shall I wait for the SBI or apply in L&T?
Regards,
Himangshu
I haven’t heard anything about SBI issuing an infra bond, in fact I don’t think that SBI can issue the infrastructure bond because these were meant for LIC, IFCI, IDFC and other NBFC companies.
SBI and others might come up with other offers in the future though.
I want to know what documents will be required if an investor wants to invest in physical form as he does not have demat account.
I have gone through various websites for this, however could not find.
Can anybody guide me.
Vishal Rochlani
Hi Vishal,
As far as I know you will need the following documents:
1. Filled up application form indicating that you want the physical option, and also the full bank details.
2. Self attested copies of the KYC documents – Proof of individual ids, proof of residence address, copy of PAN
3. Account payee cheques.
How are you trying to apply for these bonds? Aren’t the people who you’ve approached to apply this telling you what documents are required?
WHETHER ANY INCOME TAX WILL BE DEDUCTED FROM THE MATURED VALUE AFTER THE COMPLETION OF MINIMUM OR MAXIMUM PERIOD AS MENTIONED IN ANY LONG TERM INFRASTRUCTURE BOND LIKE L&T ETC.?
Yes Suhas, if you sell before maturity then any gains will attract capital gains tax. I think there will be tax even if you choose the cumulative option, and at the time of maturity indexation will be used to calculate cost price, and then see how much the capital gains are but I’m not sure of this point.
Manshu,
Is their any difference in all these infra bonds(idfc,l&t and sbi). If I want to buy one,then which one is better?
For starters, the SBI bond is not an infrastructure bond so that means the tax saving is not part of that. And anyway that’s oversubscribed now, so there isn’t much point in applying for that in my opinion.
With respect to IDFC and L&T Finance, well the yield for 5 years for both are the same, but then there is an option for 7 years in L&T which is not there in IDFC, so that’s one difference.
Another difference is the credit rating which is higher in the case of IDFC than it is with L&T. IDFC is rated LAAA by ICRA which is its highest rating, whereas L&T Finance is LAA+ which also indicates high credit quality, but I think its a notch lower than LAAA.
So, these are two differences that I can think of right now.
Manshu,
Are all these infrastructure bonds(IDFC, SBI, L&T) similar? OR does one bond have an edge over the other in any way?
Radhika,
The SBI issue is not an infrastructure issue so it’s not covered by SBI.
The other two are quite similar but the credit quality of IDFC is better than L&T Finance (acc. to the rating agency), and of course the 7 year buyback option in L&T.
Hi,
I would like to know more about the table:
I understood that the 5 year and 7 year buyback each have 7.5 and 7.75% interest each. Secondly Interest can be paid either annually or it can be re-invested.
However, I did not understand what the percentage of return on ‘Yield on Buyback is?
Buyback in years —- 7 years 7 years 5 years 5 years
Yield on Buyback 30.9% 15.23% 13.59% 17.20% 15.75%
20.6% 12.31% 11.36% 13.42% 12.58%
10.3% 9.86% 9.44% 10.23% 9.86%
Could you please explain how this is calculated with an example.
Thanks,
Debashri
Hi Debashri,
I answered those questions about IDFC Bonds in two comments, so can you please see them here:
http://www.onemint.com/2010/10/12/idfc-infrastructure-bonds-faq/#comment-103441
http://www.onemint.com/2010/10/08/idfc-long-term-infrastructure-bonds/comment-page-1/#comment-103355
Discussion on yields is an involved topic, so I am planning to have a full post on it sometime this week. You can look at the examples in the comments in the meantime, as that would give you an idea of how they are calculated.
Here is a detailed post that I just did which shows the details on how the yield is calculated.
http://www.onemint.com/2010/10/19/lt-finance-bond-yield-calculation/
dear sir i am intrested in L&T infrastructure but don’t know how to buy.do i can buy it still now(10-2-2011)