PFC is the latest company to announce tax free bonds, and their issue will start on Monday February 18th 2013, and close on March 15 2013.
Interest rates have been gradually coming down on these tax free bonds since last year and I believe the current issue from PFC has the lowest interest rate of any tax free bond issued since last year.
| Option | Tranche- II Series 1 | Tranche- II Series 2 |
|---|---|---|
| Tenor | 10 years | 15 years |
| Coupon Rate for Retail Investors | 7.38% | 7.54% |
| For Others | 6.88% | 7.04% |
| Interest Payment | Annual | Annual |
To be fair, this is not all that lower than the 7.69% being offerred by IIFCL for the same duration, but the trend is clearly downwards, last year all the tax free bonds had a 8 handle for retail investors in the 10 year range.
The bond is rated ‘[ICRA] AAA’ by ICRA,  ‘CRISIL AAA /Stable’ by CRISIL  and ‘CARE AAA’ by CARE, and will be listed on BSE.
Who is a retail investor?
Like other bonds, the definition of retail investor is the same in this issue as well, and an individual or HUF who invests less than Rs. 10 lakhs falls under this category.
The retail investor will get a 0.50% higher interest rate than other investors, but that is only available to people who directly subscribe to the issue and once you buy the bond from the secondary market you no longer get the 0.50% extra interest rate.
Conclusion and Interest Rate Direction
For a retail investor in the 30% tax bracket, these are still good debt options because the bonds listed on the market are trading at higher than face value, and you can use these bonds to form a part of the debt portion of your portfolio. The interest rates have been going lower in the past couple of years, and it is likely that it continues to go down in the near future as well, so it makes sense to lock these rates for the long term while you still can.
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I already invested 10 lakhs in the earlier issue of PFC in December 2012, I am looking for investing another 2 lakh in the current issue before March 13. Will I get additional 0.5% under retail category?
As far as I know it is 10 lakhs per issue so you will be eligible for the retail category this time as well.
What is the interest payment date as listed in the an official PFC document? I The prospectus at this http://www.pfcindia.com/writereaddat…02%20Final.pdf does not mention the date. It keeps on referring to the interest payment date and pay in date though and record date. But not mention of the exact date
I couldn’t find it either, they will perhaps declare it later.
Hello
I am an NRI and want to invest in these funds. Is Axis Bank Bangalore one of the Managers to the issue?
There has been some confusion in the previous issues where the documents said that NRIs are eligible for the issue but in reality they were not so I’m not sure how this will work. You can contact Axis and see since they are involved in some of the other tax free bonds also.
Thank you Manshu. I have another query. Do NRIs get the deduction for tuition fees paid for college education? Thanks.
No, not to the best of my knowledge.
Thanks Manshu but what I wanted to ask is whether NRIs are eligible for children’s college fees psid in India?
Yeah, I understood that and I don’t think 80C deductions are applicable for NRIs.
is PFC taxfree Tranche II is valid under Sec 80C ?
It is tax free but is not covered under 80C. 80C means the amount you invest get deducted from your taxable income, so ultimately your tax liability goes down, but the income earned from 80C investments is still taxed.
A tax free bond means that the interest generated from the bond is not taxable.
Budget needs to be watched for if they continue with the tax free bonds. If not then expect pretty good response to this issue after the budget in my opinion. I am waiting.
I forgot to say this, but please feel free to ask any questions, no matter how beginner like they may sound.
Also, please advice if the interest would be paid annually or after 10year/15 years? I had a look at PFC website..at one place it says interest paid will be annual and at another place it says total money paid at the end of term would be face value + any interest. Face value I believe is how much I initially invested.
Sorry for naive questions but then I am one when it comes to investments 🙂
Interest will be paid annually, and face value is Rs. 1,000 which is what you invest per bond in the beginning.
Thanks Manshu. say I invested rs 2,00,000.00. So at the end of say 10 years..I will receive same amount since interests for all the years would have already been paid each year. Is that how it will work?
Someone please explain…I want to invest but need this clarification..
Akhil, You will continue to get Annual interest. Once the term of bond ends, you will be paid the Principal along with the interest for the periodn which was not paid.
Hi, Quite basic questions. Are these kinds bonds secure to invest ? or are protected by any other means. Or if the company goes bust so do the bonds. How does PFC stands today?
Many thanks,
Akhil
The bonds are secured by certain assets but if the company does in fact go bust, I don’t think the assets will be enough to cover all payments.
The rating agencies have given it a AAA rating which is their highest indicating safety.
How do i invest in PFC India Tax Free Bonds – 2013 ? I have demat a/c . What is the minimum investment for retail invester?
You can invest through your brokerage like ICICI Direct if you have one, I’m assuming you do since you have a demat.
The minimum investment is Rs. 5,000