NABARD 7.64% Tax-Free Bonds – March 2016 Issue

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

Tax-Free Bonds, which carry coupon rates as per the G-Sec yield in the market, have suddenly become more attractive post this year’s budget. Finance Minister Arun Jaitley in his Budget speech announced his target to contain the government’s fiscal deficit at 3.5% of GDP in 2016-17. This lower than expected fiscal deficit has resulted in a sharp fall in bond yields in the past one week or so.

Moreover, these bonds will not be available in 2016-17 and probably afterwards as well. This will increase demand for these bonds multifolds. So, before these bonds become part of history, we have two such issues left – one is from NABARD and the other would be from IRFC. I will cover the IRFC issue in another post, let’s have a look at the salient features of the NABARD issue.

Issue Opening & Closing Dates – The issue is opening for subscription on 9th of March, the coming Wednesday and will get closed on March 14.

Size of the Issue – NABARD is authorized to raise Rs. 5,000 crore from tax free bonds this financial year, out of which the company has already raised Rs. 1,500 crore by issuing these bonds through a private placement. NABARD will raise the remaining Rs. 3,500 crore in this issue.

Coupon Rates on Offer – 10-year and 15-year G-Sec yields have fallen in the last few days, which has resulted in a fall in the coupon rates of these tax-free bonds as well. This issue will carry 7.29% for 10 years and 7.64% for 15 years.

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For the non-retail investors, coupon rate will be lower by 25 basis points (or 0.25%) for the 10-year option at 7.04% and 29 basis points (or 0.29%) for the 15-year option at 7.35%.

Investor Categories & Allocation Ratio – The investors have been classified in the following four categories and each category will have certain percentage of the issue size reserved during the allocation process:

Category I – Qualified Institutional Bidders (QIBs) – 15% of the issue is reserved i.e. Rs. 525 crore

Category II – Non-Institutional Investors (NIIs) – 15% of the issue is reserved i.e. Rs. 525 crore

Category III – High Net Worth Individuals including HUFs – 10% of the issue is reserved i.e. Rs. 350 crore

Category IV – Resident Indian Individuals including HUFs – 60% of the issue is reserved i.e. Rs. 2,100 crore

60% Issue Reserved for Retail Investors – This is something very unique to this issue. As we all know, the retail investors were getting 40% of the bonds reserved in all previous issues. This will be the first issue in which the retail investors will be allotted 60% of the total issue size. I think this is a good step in favour of the retail investors.

NRI/QFI Investment NOT Allowed – Like most of the past issues, Non-Resident Indians (NRIs) and Qualified Foreign Investors (QFIs) are not eligible to invest in this issue as well.

Rating of the Issue – CRISIL and India Ratings consider investing in these bonds to be safe and that is why they have assigned ‘AAA’ rating to the issue. Moreover, these bonds are ‘Secured’ in nature i.e. in case of any default, the bondholders would carry a right to make claim on certain assets of the company.

Listing & Allotment – NABARD has decided to get these bonds listed only on the Bombay Stock Exchange (BSE). The company will allot the bonds and get them listed within 12 working days from the closing date of the issue.

Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first come first served (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the Bombay Stock Exchange (BSE).

Demat A/c. Not Mandatory – It is not mandatory to have a demat account to apply for these bonds. Investors have the option to subscribe to these bonds in physical form as well. To apply in physical or demat form, the applicant is required to fill the physical form and attach the KYC documents along with the investment cheque. KYC documents include a self-attested PAN card copy, a self-attested address proof copy and a cancelled cheque.

Whether you apply for these bonds in demat or physical form, the interest payment will still be credited to your bank account through ECS. Moreover, even if you get these bonds allotted in your demat account, you have the option to rematerialize your holding in physical/certificate form if you decide to close your demat account in future.

No Lock-In Period – After these bonds get listed on the stock exchanges, these tax-free bonds are freely tradable and do not carry any lock-in period, the investors can sell them at the market price whenever they want.

Interest on Application Money & Refund – Successful allottees will earn interest at the applicable coupon rates i.e. 7.29% p.a. for 10 years and 7.64% p.a. for 15 years, on their application money, from the date of realization of application money up to one day prior to the deemed date of allotment. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

Minimum & Maximum Investment – Investors are required to put in a minimum investment of Rs. 5,000 in this issue i.e. at least 5 bonds of face value Rs. 1,000 each. There is no upper limit for the investors to invest in this issue. However, an investor investing more than Rs. 10 lakhs will be categorized as a high networth individual (HNI) and will get a lower rate of interest as applicable.

Interest Payment Date – NABARD will make its first interest payment exactly one year after the date of allotment and the date of allotment will be announced as the company allots its bonds to the successful applicants.

Record Date – For the payment of interest or the maturity amount, record date will be fixed 15 days prior to the date on which such amount is due to be payable.

Should you invest in this issue?

60% of the NABARD issue i.e. Rs. 2,100 crore is reserved for the retail investors. Not 100% sure, but I think it should take at least a couple of days for this issue to get subscribed in the retail investors category. I think many investors would have got the NHAI refunds credited by then.

As the Finance Ministry has a view that these tax-free bonds create some kind of imbalance in the market, especially for our commercial banks, they have decided not to extend such support to these issuers from the next financial year onwards. That makes this issue and the IRFC issue to be the last two opportunities for the investors in the higher tax brackets to make their investments. Such issues will not be available for at least next 18 months or so, even if the government decides to allow their issuances in Budget 2017. So, if you want to invest in these bonds and earn tax-free income, you need to act now and fast.

Application Form for NABARD & IRFC Tax Free Bonds

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in NABARD or IRFC tax-free bonds, you can contact/whatsapp me at +919811797407 or mail me at [email protected]

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224 thoughts on “NABARD 7.64% Tax-Free Bonds – March 2016 Issue”

  1. Sir..
    I did not get refund n allotment of
    Nabard…how people’s saying .they hv
    Get refund..still waiting. .

    Reply

      1. Thanks Shiv for clarification.
        There have been so many Tax Free Bonds issues from the in different organizations (HUDCO, NHAI..etc..) and I am sure many of us have been allocated bonds in different lots. When it comes to interest credit the bank statement shows Interest from HUDCO that’s it. From this information it’s difficult to track if it interest payment is for 2016 lot 1 or lot 2 or earlier years tax free bonds. Also; the amount calculated is correct or not. Can we have a simple tracker for all tax free bonds issues till date. Else there is a great chance that we may miss on some credit of interest and tracking will be tough later on.

        Reply

        1. The best thing is to maintain your own excel sheet for the bonds you hold. You can have columns like company, from date, to date, Amount invested, interest payment date, interest amt.

          Reply

      2. I think the refund and the interest will come together.
        Due to 100% allocation, I dont expect any refund, however I havent received the interest yet. I received it for IRFC.
        Should I reach out to Karvy / NABARAD?

        Reply

      3. Dear Shiv

        Can we have a consolidate table for all the tax free bonds issued in this financial year with their interest payment dates.

        Regards
        Piyush

        Reply

  9. Hi Shiv – Will it be possible for you to publish a table for all the Tax Free Bonds with their interest payment dates that came during this financial year?

    Reply

  10. Hello All,

    Sorry for this basic question.
    I got refund of HUDCO, and am getting 52% of applied bonds (calculated from the refund).
    I have requested the bonds in physical format.
    How will I come to know about the allocation and by when the physical bonds would be sent to me?
    Will this site be uploaded with the bond details ? http://kosmic.karvy.com:81/ipotrack/

    Thanks!

    Reply

  14. Appeal to all readers to kindly share with us any news about Refunds received in their Accounts through RTGS Transfer on account of HUDCO TRANCHE-2, March 2016 issue.

    Reply

  15. Thanks for timely update…very useful info.
    It seems , issue is just made it to full retail subscription and will not be any extension for sure.

    Reply

    1. Thanks Vasu!
      Yes, there should not be any extension in either of these two issues – NABARD and IRFC. Some better than expected subscription pick up was there at least on the last day of these issues.

      Reply

  17. Final Day (March 14) subscription figures:

    Category I – Rs. 5,630 crore as against Rs. 525 crore reserved – 10.72 times
    Category II – Rs. 5,297.21 crore as against Rs. 525 crore reserved – 10.09 times
    Category III – Rs. 1,429.82 crore as against Rs. 350 crore reserved – 4.09 times
    Category IV – Rs. 2,053.14 crore as against Rs. 2,100 crore reserved – 0.98 times
    Total Subscription – Rs. 14,410.17 crore as against total issue size of Rs. 3,500 crore – 4.12 times

    Reply

  18. Can Mr. Shiv or the other readers of this extremely helpful Blog please update us, who are quite anxious, through this forum, as soon as they receive the refunds from HUDCO Bonds application money?

    Reply

  20. Hello Shiv,

    Just 15 days back I started exploring the TFB option (and last 2 weeks were surely very active on the TFB front).
    Your posts and the answers have helped me so much in knowing how it works and clarify confusion. No question remains un-answered after going thru your answers for the posted queries.
    Please keep writing and educating us.

    Thank you so much for your efforts!

    Reply

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