PFC (Power Finance Corporation) is the latest company to come out with tax free bonds and the terms are exactly the same as the NHAI bond issue.The only two differences that I noticed was that the minimum subscription for the NHAI issue was Rs. 50,000 and for this issue is Rs. 10,000, and these bonds will list only on the BSE while the NHAI issue was going to list on both BSE and the NSE.
Other than that, everything appears to be the same to me.
The issue opens on Friday, December 30th 2011 and will close on January 16th 2011. It is likely that this issue gets over-subscribed quickly because the same thing happened with the NHAI issue that had similar characteristics.
If that happens then the PFC issue will close the issue before the January 16th 2011, so if you are interested in these bonds then subscribe as soon as you possibly can.
The total issue size is Rs. 4,033 crores and while that doesn’t make any difference to individual investors – I want to keep a track of the size of these issues to see how much money flows into them, so that’s the reason for mentioning it here.
Here are some of the other terms of this issue.
| Options |
Tranche 1 Series I |
Tranche 1 Series II |
| Face Value |
Rs. 1,000 |
Rs. 1,000 |
| Term |
10 years |
15 years |
| Interest payment |
Annual |
Annual |
| Coupon Rate |
8.20% |
8.30% |
Based on the questions I saw for the NHAI issue – I think a lot of people are confusing the 80CCF infrastructure bonds with these bonds.
So, I want to clarify that these are not infrastructure bonds and they do not come under the 80CCF limit – PFC had issued infrastructure bonds earlier, but they closed for subscription on November 4th 2011. If you came here looking for the Rs. 20,000 additional limit under 80CCF then this is not the instrument for you.
You need to choose one of the open infrastructure bonds from this list.
The next common question is about returns comparing tax free bonds with long term fixed deposits and you can find a very detailed post on that subject here.
I can’t think of anything else with respect to the PFC tax free bonds that I should mention here, so if you have any questions or observations – please leave a comment.
Dear shiv, I haven’t received interest for 830pfc2027 and 704irfc for 2016. Do you have any idea. I should have received it today.
Hi Mahidhar… Get a Dematerialisation Request Form (DRF) from your broker, fill that form, attach the PFC Bond Certificate with it & submit both the docs in your broker’s office. Rest it is your broker’s job to send if to PFC’s registrar, Karvy. Karvy will then convert it into a Demat form.
Hi,
Please let me know how to convert the PFC tax free bonds which are in physical form to Demat Form. I already having Demat Account.
Thanks
Mahidhar
Hi
Here is the link to check the PFC Tax Free Bonds allotment status:
http://mis.karvycomputershare.com/ipo/
If I am not wrong Tax Free bonds make an annual interest payout. So there is no compounding and hence cannot be used for creating a corpus. It maybe suitable for a retired person to park ONLY 10/20% of his/her corpus to get a steady annual income. It is not suitable for any other goal as I see it. Investing 50K in PPF for first year and keeping it alive for Rs. 500 each will fetch you more because of the compounding.
herge,
You can reinvest the interest payout in any mutual fund,fd ,gold or whatever depending on your choice & get further returns
Dear All,
PFC Tax free bond allotment started. I just got the SMS and checked CDSL a/c also. 🙂
Thanks.
To add, I applied on the first day and got full allotment.
From the posts above it looks like the NHAI and PFC bonds are long gone for subscription. Are there any new tax savings bonds (like NHAI or PFC) coming up that I can look forward to investing?
Thanks,
Sowmya.
Hi Sowmya… PFC Tax-Free Bonds are still open for subscription and the issue will close on January 16th. I think the Tax-Free interest rates of 8.30% (15 years) and 8.20% (10 years) are quite good to get invested. The 10-year Benchmark G-Sec yield has fallen from 9% in November to 8.20% today.
Four companies, NHAI, PFC, IRFC and HUDCO have got the Govt. nod to issue these kind of Tax-Free Bonds. These cos. will come with more Tax-Free Bond issues in future but going by the trend, the interest rates offered by these cos. will not remain as attractive as the current rates.
Hi..
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Regards
Nikhil Shah
how is this PFCI bond issue ? shud we apply ?
I want to understand if and how these bonds are better than the new 10 Year NSC.
At a rate of 8.7%, a principal of Rs. 50,000 would be closr to Rs. 1,15,000. The interest, if declared yearly is tax free upto 1 lac. So technically, this should be “tax free” for retail investors.
How are PFC bonds better?
Dear Shiv,
Can you please reply to this post of Ashish Jain. I am also interested to know.
Is the PFC issue still open for retail investors ?
After investing most of my fund in NHAI, can I invest the remaining bits in PFC for LISTING GAINS ONLY ? What is your advice ?
When is the issue of Indian Railways and HUDCO bonds coming ? Do you expect these issues to offer higher coupans than NHAI ?
Thanks
Hi..
( 1 ). Yes..PFC Tax Free Bond Issue still open for retail investor.
(2). After Investing most of your fund in NHAI , you should invest remaining amt in PFC For Listing gains , because rates are going down…..See the 10 Yrs Gsec Yield is coming down…
(3). The issue of Indian Railway And Hudco bonds are coming months.it’s offer price should be below NHAI..
Regards
Nikhil Shah
Hi TCB and Hello Mr. Aashish Jain… the interest earned on NSC investments is Taxable, whereas these are Tax-Free Bonds. From investments point of view, the effective yield would be way higher than NSCs, especially for people in the 30.9% & 20.6% tax brackets. Its just that post office investments are relatively safer than these bonds and also offer tax deductions u/s 80C.
Yes, PFC issue is still open for the Retail Investors. You can apply to it if you want to. Though not 100% sure, I’m quite confident there will be some listing gains in PFC issue as well. I think the NHAI issue was better than the PFC issue, but it is not a bad one. So you can go for it. I would say you can invest 20-40% of the amount you invested in NHAI, in this PFC issue.
IRFC issue is expected to come in the last week of January. There is no question of a higher rate than the NHAI issue. Going by the trend in the bond markets, I think all of the upcoming issues will offer sub 8% Tax-Free interest rates and if somebody wants to invest, he/she should go for the PFC issue.
Hi, I am interesting in putting money in this bond,… But have never done this before. My investments have been only RDs so far.. how do I go about this? is there an online payment system for this?
Garauv’s link about the tax part on these bonds led me to search more about it. Found a great link at taxguru.in. Quoting the various income tax related stuff regarding these tax free bonds as per taxguru.in: NHAI Tax Free Bond – Tax benefit and effects under the Income Tax Act, Wealth Tax Act and Direct Tax Code
Interest from Bond do not form part of Total Income so it tax free. Since the interest Income on these bonds is exempt, no Tax Deduction at Source is required.
Under section 2 (29A) of the I.T. Act, read with section 2 (42A) of the I.T. Act, a listed Bond is treated as a long term capital asset if the same is held for more than 12 months immediately preceding the date of its transfer.
Short-term capital gains on the transfer of listed bonds, where bonds are held for a period of not more than 12 months would be taxed at the normal rates of tax in accordance with and subject to the provision of the I.T. Act.
Long term capital gain tax can be considered 10% on listed bonds without indexation. Securities Transaction Tax (“STTâ€) is a tax being levied on all transactions in specified securities done on the stock exchanges at rates prescribed by the Central Government from time to time. STT is not applicable on transactions in the Bonds.
Note:20% of long term capital gains calculated after reducing indexed cost of acquisition is not available for these bonds
Wealth-tax is not levied on investment in bond under section 2(ea) of the Wealth-tax Act, 1957.
If there are some discrepancy of misinterpretion please correct.
A nice article on Earning tax free returns from fixed deposit is available at http://jamapunji.blogspot.com/2011/12/earning-tax-free-returns-from-fixed.html
Further the comparison of return between tax free bonds like PFC and NHAI to that of Fixed deposits is available at http://jamapunji.blogspot.com/2011/12/nhai-tax-free-bonds.html
Must read to save taxes and earn higher returns.
Thanks Gaurav – the part of the post regarding the capital gains tax for early exit was what has not been discussed in this forum. Infact everyone is so caught up in the discussion about understanding these tax free bonds that this part got ignored.
Quoting from Gaurav’s link NHAI Tax-free Bonds
The above is true in the case when you remain invested for full tenure of bonds. But in case you wish to exit from bonds by selling those in a stock exchange, you need to pay capital gains tax.
In case you sell the bonds before one year, the income will be clubbed with your other income and you will be taxed at normal rates as per slabs (short term capital gain tax). So the 9% profit from sale of bonds in stock exchange (assuming you sold those at premium of 0.8%), your yield will reduce to below 6% in highest tax bracket.
In case you sell these bonds after at least one year, you need to pay long-term capital gain tax. This tax is 10% without indexation and 20% with indexation. This long-term capital gain is not exempted like other stocks and equity mutual funds as no STT is charged in sale of bonds in stock exchange. So in this case also, your actual yield will be much lower than actual 8.2%.
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The link http://www.investta.com/viewtopic.php?f=13&t=5756 is not working 🙁
It says The requested topic does not exist.
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Thanks Krish for raising the point. I should have given the link. I quoted from the times of india article which seems to bigger than the link you pointed out.
NHAI awaits retail bids to close bond issue Quoting from that
Already, the buzz in the market is that fresh bids from HNIs and institutional investors are not being entertained and the NHAI issue could close by Monday. “As soon as NHAI achieves the retail quota, the issue will be closed,” said a government official.
This is the same thing that happened in equity IPOs and now is happening with bond issues.
I read a report today in TOI that the retail portion of NHAI is far from oversubscribed and going by that report, don’t think it will be oversubscribed today or by Monday as @bemoneyaware feels
“So far, the Rs 5,000 crore bond issue has generated bids for only Rs 622 crore from retail investors against the quota of Rs 1,000 crore.
One thing is, however, clear that NHAI is going to use the option to retain Rs 5,000 crore oversubscription, over and above the Rs 5,000 crore issue size. As a result, the share of retail investors in the total programme will work out to Rs 3,000 crore. ”
Link: http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=TOINEW&BaseHref=TOICH/2011/12/30&PageLabel=18&EntityId=Ar01803&ViewMode=HTML
Today People would apply for this assuming that NHAI issue has been oversubscribed and they have missed the bus.
The retail portion of NHAI is still open though it is being said that it will be subscribed today or latest by Monday after which NHAI issue will close.
Few other minor differences I would like to highlight:
1. The allocation percentage between different categories (Institutional, HNI, Retail) is little different in PFC. It is 50/25/25 compared to 40/30/30 in NHAI.
2. The allocation logic for retail investors in PFC is based on first come first served compared to proportional in NHAI.
So, if you are planning to invest in PFC (which is equally good as NHAI), please hurry up!
One another major difference being the minimum subscription amount.
In case of NHAI, it is 50000 Rs while PFC has a minimum subscription amount of 10000 Rs. This will help small inevstors not planning to invest 50000 Rs
Hi,
How about the rating of these PFC bonds ? I see that NHAI are more secured & stable.
Cheers, Karthik
CRISIL AAA and ICRA AAA and PFC is a navratna as well, so I would say equally secure.