Category: Investments

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]

NHPC Limited (formerly National Hydroelectric Power Corporation) will launch its issue of tax-free bonds from October 18th, the coming Friday. Coupon rates of NHPC are absolutely same as they are offered by PFC in its issue which is getting open for subscription from today i.e 8.92% per annum for 20 years, 8.79% per annum for 15 years and 8.43% per annum for 10 years.

NHPC has decided to run this issue till November 11th, the same date on which the PFC issue is also slated to get closed. But, in case of oversubscription or undersubscription, the company has the authority to preclose the issue or extend the issue closing date.

Size of the Issue – The base size of the issue is Rs. 500 crore and there is a green-shoe option with the company to retain oversubscription of an additional Rs. 500 crore, thus making this issue of Rs. 1,000 crore the smallest of all the tax-free bond issues launched this financial year so far.

Rs. 1,000 crore is the total amount NHPC has been authorised to raise from tax-free bonds this financial year. I think NHPC will not be required to do any private placement to raise money from tax-free bonds as there is enough appetite for its high yielding bonds in the market.

Red Signal again for NRIs – Like IIFCL did that first, NHPC has also decided not to offer these bonds to the non-resident Indians (NRIs) and qualified foreign investors (QFIs). So, if any of the NRIs wants to invest in the tax-free bonds yielding as high as 8.92%, then he/she will have to opt for the PFC issue.

Rating of the Issue – Like PFC issue, NHPC issue is also ‘AAA’ rated. ICRA, CARE and India Ratings have assigned ‘AAA’ rating to this issue, which is their highest rating to any debt issue. Also, the bonds will be ‘Secured’ by a pari passu first charge on specific assets of the company, with an asset cover of one time of the total outstanding amount of bonds.

Listing – NHPC has become the first company to propose and obtain the necessary approval to get its tax-free bonds listed on the National Stock Exchange (NSE) as well as on the Bombay Stock Exchange (BSE) this financial year.

Investors can apply for these bonds either in demat form or in physical form, as per their choice. The company will get the bonds allotted and listed within 12 working days from the issue closing date.

No Lock-in Period – As these bonds get traded on the stock exchanges and do not provide any tax deduction u/s 80CCF or 54EC, there is no lock-in period with these bonds. The investors are allowed to sell these bonds at the prevailing market rate whenever they want to do so. There are no charges involved with premature encashment and there will not be any tax penalty payable to the tax authorities.

No TDS – As these are tax-free bonds, there is no question of TDS getting deducted, whether you take them in physical form or demat form.

Interest Payment Date & Record Date – NHPC has decided to fix April 1, 2014 as the first interest payment date. For subsequent years also, interest will be paid on April 1st every year. The record date for payment of interest or the maturity amount will be 15 days prior to the date on which such amount is payable.

Categories of Investors & Allocation Ratio – The investors again have been classified in the following four categories and each category has certain percentage of the issue reserved for the allotment:

• Category I – Qualified Institutional Bidders (QIBs) – 15% of the issue is reserved
• Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved
• Category III – High Networth Individuals (HNIs) including HUFs – 25% of the issue is reserved
• Category IV – Resident Indian Individuals (RIIs) including HUFs – 40% of the issue is reserved

Allotment on FCFS Basis – Subject to the allocation ratio, allotment will be made on a first come first serve (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchanges.

Minimum & Maximum Investment – Investors are required to apply for a minimum of five bonds of Rs. 1,000 face value each, thus making Rs. 5,000 as the minimum investment to be made. An applicant may choose to apply for these bonds of the same series or across different series also.

Retail Investors’ investment limit stands at Rs. 10 lakhs, beyond which they will be considered as HNIs and will get a lower rate of interest.

Interest on Application Money & Refund – NHPC will pay interest to the successful allottees on their application money at the applicable coupon rates, 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.

Though the issue is getting launched four days after the PFC issue, I think it is very important for the investors, who are planning to invest in PFC and NHPC both or only in NHPC, to first go for the NHPC issue as soon as possible because the issue size in itself is relatively much smaller. Retail investors will have only Rs. 400 crore to be invested in this issue as compared to Rs. 1,550.36 crore to be invested in the PFC issue.

Also, I think the spillover portion of the non-retail investors is unlikely to fall into retail investors’ kitty this time around. As compared to the PFC issue, I think there is a high probability that this issue will get a better response from the non-retail investors also, as they would like to diversify their investments across different companies and this is the first time NHPC has been issuing these tax-free bonds through a public issue.

That is why, I think this issue will get preclosed much earlier than its official closing date of November 11th. I am expecting this issue to get oversubscribed very soon and get closed in October itself.

Application Form of NHPC 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 NHPC tax-free bonds, you can contact me at +919811797407

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]

‘AAA’ rated REC issue offered 8.71% to its investors, ‘AA+’ rated HUDCO issue fixed it at 8.76% and then ‘AAA’ rated IIFCL issue managed to cross REC’s peak rate of interest with 8.75%, but now it is the turn of Power Finance Corporation (PFC) to surpass all previous rates to set this year’s highest interest rate on its tax-free bonds by offering 8.92% for a 20-year duration.

PFC would be the fourth company to launch its public issue of tax free bonds this year from Monday i.e. October 14th. The issue would run till fifth Monday i.e. November 11th. But, the company may extend it or preclose it, depending on the investors’ response to the issue.

Interest rates offered by PFC are the highest rates for all three tenors. PFC has set its coupon rates at 8.92% per annum for 20 years, 8.79% per annum for 15 years and 8.43% per annum for 10 years. This jump is due to a rise in the benchmark G-Sec rates in the last 10-15 trading days, after the Repo Rate hike by the RBI.

Size of the Issue – PFC has been authorised to raise Rs. 5,000 crore from tax-free bonds this financial year, out of which it has already raised Rs. 1,124.10 crore through a private placement on August 30th. The company plans to raise the remaining 3,875.90 crore from this issue, with the base issue size of Rs. 750 crore and the green-shoe option of Rs. 3,125.90 crore.

Like REC, if this issue gets subscribed to the tune of Rs. 3,875.90 crore, it will be the last issue of PFC this financial year.

Green Signal for NRIs – After IIFCL not allowing NRIs and QFIs to invest in its issue, PFC has decided not to do that. NRIs, on repatriation basis and on non-repatriation basis, are eligible to invest in this issue. Qualified Foreign Investors (QFIs) are also eligible to participate in this issue.

No Lock-in Period – Many people have been asking me about the lock-in period of these tax-free bond issues, but I don’t know how I missed to mention it here in all my previous posts that there is no lock-in period with these tax-free bonds. If you subscribe to these bonds in demat form, you can sell them anytime you want after their listing on the stock exchange.

These are not tax saving bonds, like 80CCF Infrastructure Bonds or 54EC Capital Gain Tax Saving Bonds, which carry a lock-in period of five years and three years respectively.

Listing – PFC will get these bonds listed only on the Bombay Stock Exchange (BSE). Investors can apply for these bonds either in demat form or in physical form, as per their choice. The company will get the bonds allotted and listed within 12 working days from the issue closing date.

Rating of the issue – Three credit rating agencies, CRISIL, ICRA and CARE have rated this issue and all of them have rated it as ‘AAA’, which is their highest rating to any debt issue. Also, these bonds are ‘Secured’ in nature against certain assets of the company.

Categories of Investors & Allocation Ratio – The investors again have been classified in the following four categories and each category has certain percentage of the issue reserved for the allotment:

• Category I – Qualified Institutional Bidders – 15% of the issue is reserved
• Category II – Non-Institutional Investors – 20% of the issue is reserved
• Category III – High Networth Individuals including HUFs, NRIs & QFIs – 25% of the issue reserved
• Category IV – Resident Indian Individuals including HUFs, NRIs & QFIs – 40% of the issue reserved

Minimum & Maximum Investment – There is no change in the minimum investment requirement of Rs. 5,000 i.e. at least 5 bonds of Rs. 1,000 face value each. Retail Investors’ investment limit stands at Rs. 10 lakhs, beyond which they will be considered as HNIs and will get a lower rate of interest.

Interest on Application Money & Refund – PFC will pay interest to the successful allottees on their application money at the applicable coupon rates, 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.

Factors favouring investment in this PFC Issue…

* Highest Coupon Rates – Thanks to a sudden spike in the G-Sec yields in the last 10-12 trading days since the RBI raised the Repo Rate in its monetary policy of September 20th, PFC has been to offer the highest interest rates of the current financial year. I think with 8.92% or 8.79% tax-free rates, investors in the 30% or 20% tax brackets would not even think of going for a bank FD @ 9%.

* RBI cutting the MSF Rate – RBI has cut the MSF Rate by 50 basis points to 9% a couple of days back. The idea was to reduce liquidity crunch in the banking system and help banks in reducing their cost of overnight (very short-term) borrowings and also normalize the yield curve. This move makes market participants believe that the RBI will try to cap the rise in overall interest rates as much as possible.

* Fall in G-Sec Yield – As a result of the RBI’s move to cut the MSF Rate, the 10-year G-Sec yield has fallen from 8.68% to 8.46% in the last couple of days. If this fall is not temporary and continues for a little longer time, you would see a fall in the coupon rates of the upcoming tax-free bond issues.

* Postponement of QE3 Tapering & US Shutdown – US Federal Reserve’s decision to postpone QE3 tapering and a partial shutdown in the US have resulted in a fall in the 10-year bond yield there from 3%+ to 2.64% today. This should also keep the sentiment somewhat healthy here in the Indian bond market.

* Steep fall in September Trade Deficit – With a fall in gold & oil imports and a surge in exports, the Ministry of Commerce today announced a steep fall in our September trade deficit. The problem, which was becoming too burdensome for our economy, is finally getting controlled. This should strengthen the value of Indian rupee against the US dollar in the coming days and the bond yield should also move lower.

Factors against this PFC Issue – Though there are not many factors which come to my mind against this issue, but overall things are not very bright for the power financing sector here in India. PFC, REC and PTC India Financial Services are some of the companies which have been struggling to get their money back which they have been lending to the state electricity boards (SEBs) over the years.

These kind of events have resulted in its share price falling from Rs. 350+ during 2010-11 to below Rs. 100 this year and I think stock price performance is a good barometer to check a company’s current financial health and future prospects. So, this is one thing which you should consider before investing your money in this issue.

With PFC offering relatively higher interest rates and NHPC issue hitting the market only in the third week, I would prefer to invest my money in this issue as compared to HUDCO and IIFCL issues. With so many positives and a possible fall in inflation & interest rates, I think PFC’s rates would be the highest coupon rates offered by any ‘AAA’ rated issuer this financial year.

Application Form of PFC Tax Free Bonds

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 PFC tax-free bonds, you can contact me at +919811797407

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]

After REC 8.71% issue and HUDCO 8.76% issue, India Infrastructure Finance Company Limited (IIFCL) would be the third such company to come up with its public issue of tax free bonds this financial year from the coming Thursday i.e. October 3rd.

IIFCL has fixed its coupon rates at 8.75% per annum for 20 years, 8.63% per annum for 15 years and 8.26% per annum for 10 years. As compared to the HUDCO issue, the rates are lower for the 10 year and 15 year options, but higher for the 20 year option. This is probably due to a rise in the longer duration rates in the last 10-odd days, after the Repo Rate hike by the RBI.

The issue has been rated ‘AAA’ as against the currently running ‘AA+’ rated issue of HUDCO. So, I think the investors, who were not subscribing to the HUDCO issue due to its lower rating of ‘AA+’, should definitely lap it up to enjoy higher tax free rate of interest.

The official closing date of the issue is October 31, but the company may extend it or preclose it, depending on the investors’ response to the issue.

Size of the Issue – IIFCL is allowed to raise Rs. 10,000 crore from tax-free bonds this financial year, out of which it has already raised Rs. 2,963.20 crore through three of its private placements. The company plans to raise Rs. 2,500 crore from this issue, including the green-shoe option of Rs. 2,000 crore, and that is why the company is calling it to be “Tranche-I Issue”.

The issue size is smaller in comparison to the issue size of REC bonds of Rs. 3,500 crore and also of HUDCO bonds of Rs. 4,809.20 crore. I was expecting IIFCL to raise Rs. 7,000 crore from this issue itself, but probably the company sees lesser investor appetite at this point in time, as the market is already flooded with other bond or NCD issues.

NRIs not allowed – This was quite surprising to me. Contrary to what was appearing in the newspapers a few days back to attract foreign investors or non-resident Indians (NRIs) to invest in some kind of infra bonds issued by IIFCL, the company has not allowed them to invest in this Tranche-I issue at least. Probably they have their own reasons behind it.

Listing – IIFCL will get these bonds listed only on the Bombay Stock Exchange (BSE). Investors can apply for these bonds either in demat form or in physical form, as per their comfort and requirement. The company will get the bonds allotted and listed within 12 working days from the issue closing date.

Interest on Application Money & Refund – IIFCL will pay interest to the successful allottees on their application money, from the date of realization of application money up to one day prior to the deemed date of allotment, at the applicable coupon rates. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

Rating of the issue – Four companies have rated this issue, ICRA, Brickwork Ratings, CARE and India Ratings, and all of them have rated this issue at ‘AAA’, which is their highest rating to any debt issue. Also, these bonds are ‘Secured’ in nature against certain assets of the company.

Categories of Investors & Allocation Ratio – The investors again have been classified in the following four categories and each category will have certain percentage of the issue reserved for the allotment:

• Category I – Qualified Institutional Bidders (QIBs) – 15% of the issue is reserved
• Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved
• Category III – High Networth Individuals (HNIs) including HUFs – 25% of the issue is reserved
• Category IV – Resident Indian Individuals (RIIs) including HUFs – 40% of the issue is reserved

Minimum & Maximum Investment – There is no change in the minimum investment requirement of Rs. 5,000 i.e. at least 5 bonds of Rs. 1,000 face value each. Retail Investors’ investment limit stands at Rs. 10 lakhs, beyond which they will be considered as HNIs and will get a lower rate of interest.

Profile of the company – IIFCL, which started its operations in 2006, is 100% owned by the Government of India. IIFCL has been a key institution in the infrastructure financing space and serves the strategic role in financing economically viable infrastructure projects in the country.

IIFCL is a favoured institution with the Government of India. Its board of directors includes representatives from the Ministry of Finance and the Planning Commission. Also, India Infrastructure Finance Company UK (IIFC-UK), IIFCL’s wholly-owned subsidiary, has a government-guaranteed $5 billion credit line from the Reserve Bank of India (RBI) against India’s foreign exchange reserves.

The government has supported IIFCL by way of regular equity infusions and this figure stood at Rs. 400 crore last financial year. IIFCL has total borrowings of Rs. 29,493 crore as on March 31, 2013, out of which 72% borrowings carry sovereign guarantee by the government.

With the interest rates still ruling higher, IIFCL’s interest rates look quite attractive to me. IIFCL is a special company in the infrastructure finance space and I think the support extended to it by the government will continue in the near future as well. With so many positives, I think this issue definitely merits some consideration by the investors.

Download the Application Forms of IIFCL Tax Free Bonds

As per SEBI guideline, ‘Bidding’ is mandatory before banking the application form. For bidding of your application, any further info or to invest in IIFCL tax-free bonds, you can contact me at +919811797407

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]

Shriram Transport Finance Company Limited (STFCL) will be launching its public issue of non-convertible debentures (NCDs) from October 7th i.e. next Monday. The company plans to raise Rs. 500 crore with this issue, including a green-shoe option of Rs. 250 crore.

This is the second such public issue of this financial year from STFC, as the company raised Rs. 750 crore from its first issue in July and the issue got preclosed in just seven days time on July 24th. The current issue will get closed in a couple of weeks time on October 21st, if it does not get preclosed this time again or extended by the company beyond this date.

Shriram Transport Finance offered 10.90% per annum for 36 months and 11.15% per annum for 60 months in its last issue to the individual investors. This time the rates are 35 basis points (or 0.35%) higher at 11.25% per annum for 36 months and 11.50% per annum for 60 months. The company did not offer 84 months option in its first issue, which is there in its current issue. But, there is no monthly interest option this time.

Before it starts getting repetitive again, here you have the table having the details about the tenors and the interest rate options.

As you can check from the table above, there is an additional incentive of 0.50% p.a. with 36 months option, 0.75% p.a. with 60 months option and 1% p.a. with 84 months option. Unlike tax-free bonds, this additional incentive is available to the individual investors irrespective of the size of their investment amount.

The company is offering its highest rate of interest @ 11.75% p.a. for an investment period of 84 months, which is a very long period for me to stay invested with a private company. Personally, I would avoid 84 months option.

Categories of Investors – The investors have been classified in the following four categories and the individual investors fall in Category III as well as Category IV.

• Category I – Institutional Investors
• Category II – Non-Institutional Investors
• Category III – High Net-Worth Individuals, including Hindu Undivided Families (HUFs)
• Category IV – Retail Individual Investors, including Hindu Undivided Families (HUFs)

Non-Resident Indians (NRIs), foreign nationals and qualified foreign investors (QFIs) among others are not eligible to invest in this issue.

Allocation Ratio – 50% of the issue is reserved for the Retail Individual Investors (RIIs) i.e. the individual investors investing up to Rs. 5 lakhs and 30% of the issue is reserved for the High Net-Worth Individual Investors (HNIs) i.e. the individual investors investing above Rs. 5 lakhs. 10% of the issue is reserved for the Institutional Investors and the remaining 10% is for the Non-Institutional Investors (NIIs). The allotment will be made on a “first come first serve” basis.

Minimum Investment – Like last time, the company has decided to keep the minimum investment requirement at Rs. 10,000 again i.e. 10 bonds of face value Rs. 1,000 each.

Listing – STFC will get these bonds listed on the National Stock Exchange (NSE) as well as the Bombay Stock Exchange (BSE). Investors can apply for these bonds either in physical form or in demat form, at their own discretion.

Allotment and subsequent listing both are happening super fast these days as we have seen it in the case of REC tax-free bonds. The company will get the NCDs allotted and listed within 9 working days from the date of closure of the issue.

Rating & Nature of the NCDs – CRISIL has rated these NCDs as ‘AA/Stable’ and CARE has assigned a rating of ‘AA+’ to this issue. Moreover, these NCDs are ‘Secured’ by a first charge on an identified immovable property and specified future receivables of the company.

Taxability & TDS – The interest earned on these NCDs will be taxable as per the tax slab of the investors. TDS will be applicable if the NCDs are taken in the physical form and the interest amount exceeds Rs. 5,000 in a financial year. But, if you take these NCDs in your demat account, the company will not deduct any TDS from the interest income.

Interest on Application Money & Refund – Investors will get interest on their application money @ 9% p.a., from the date of investment till the deemed date of allotment, and @ 4% p.a. on the amount liable to be refunded.

Interest Payment Date & Record Date – STFC will make its first interest payment on April 1, 2014 and then on April 1st every year. The record date will be 15 days prior to every interest payment date.

Performance of NCDs issued in July – It is not surprising for me to see all of the NCDs, issued in its first issue in July, to trade below the face value of Rs. 1,000. The reason being the interest rates have risen since then.

STFC-NV, 36 months annual interest option, last traded at Rs. 985 and STFC-NW, 60 months annual interest option, last traded at Rs. 980.10 as on September 27, 2013. Allotment date of these NCDs was August 1, 2013 and it has been almost two months since then. So, the yield on these NCDs must be ruling around the coupon rates offered by the company in the current issue.

IIFL NCDs Issue vs. STFC NCDs Issue vs. HUDCO Tax-Free Bonds

If some of the investors were comfortable investing with the just concluded IIFL NCDs but somehow missed it, then I think they can consider investing in this issue. My personal opinion is that the business model of Shriram Transport Finance is better than the business model of India Infoline Finance Limited (IIFL) and probably its credit rating also suggests that.

But, I would still say that one should explore the already listed NCDs yielding 13-14% with a maturity period of 1-2 years. I think, with fixed deposits (FDs) or NCDs issued by private companies, the shorter the tenure of your investment is, the better it is.

As explained many times earlier, I think the investors falling in the higher tax brackets should opt for tax-free bonds rather than these taxable NCDs. So, personally I would go for HUDCO tax-free bonds or the upcoming IIFCL tax-free bonds rather than these STFC NCDs.

If you are thinking that I have missed to quote the financial of the company in this post, then you are right, but it is intentional. I did that exercise in my July STFC NCDs post and I don’t want to do that again as those were its latest annual results.

Link to Download the Application Form of Shriram Transport Finance NCDs

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]

A couple of days back, I got an investor query on my email id asking me whether she should go for NCDs issue of India Infoline Finance Limited (IIFL) or not and can we expect any tax-free bonds issue to offer monthly interest option. She also told me that she falls in the 30% tax bracket and her mother, for whom also she wants to invest, falls in the 20% tax bracket.

So, if you have been reading my posts regularly, you must be knowing my thoughts about it by now. I told her that I think it is better to invest in HUDCO tax-free bonds as compared to IIFL NCDs as she and her mother both fall in the higher tax brackets and also it is always better to go with debt securities of the government-owned public sector companies vis-a-vis private sector issuers.

But, her reason for considering IIFL NCDs was different and genuine also. She wanted to have a regular monthly income for her mother and she was not able to take a decision between Post Office Monthly Income Scheme (POMIS), which is fetching 8.40% annually to its investors for FY 2013-14, and IIFL NCDs, which are going to give approximately 43% higher interest @ 12% per annum.

Though she knew that POMIS deposit is government backed and old age people should not take high risks with their principal investments by depositing their hard-earned lifetime savings with private companies, she wanted to earn higher rate of interest, interest rate which is able to earn them somewhat higher than the spiralling inflation.

I told her that the government has not allowed any of the companies to issue tax-free bonds with monthly interest payment option. The maximum these companies can offer is to make the interest payments twice in a year, on a semi-annual basis. But, no company till date has issued bonds with a semi-annual interest payment.

So, what is the deal? How can you generate regular monthly inflows from your tax-free bonds, which are designed to pay it only once every year, and pay tax only to the minimum extent possible?

By now, we all know the taxability rules of the bonds/NCDs listed on the stock exchanges. What did you say? You do not know the tax provisions as yet? Shame on me if you do not know the taxation rules even now, I have been writing these posts since ages now.

🙂 Just trying to make you people feel a little light and prepared for reading a long post!

As per the language of HUDCO tax-free bonds prospectus – “As per third proviso to Section 48 of Income tax act, 1961, benefits of indexation of cost of acquisition under second proviso of Section 48 of Income tax Act, 1961 is not available in case of bonds and debenture, except capital indexed bonds. Thus, long term capital gain tax can be considered at a rate of 10% on listed bonds without indexation”.

I hope at least now the taxation rules are clear! No ?? Still Not ?? What did you say ?? The language does not tell you the rules for the short term capital gain tax. Oh yes, I am sorry !! You are right, my mistake !!

So, here you have the taxation provisions with respect to the short-term capital gains – “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.

A 2% education cess and 1% secondary and higher education cess on the total income tax (including surcharge for corporate only) is payable by all categories of taxpayers”.

I hope now it is done and nobody will forget these rules now onwards!

So, you must be asking, am I suggesting you to start selling these bonds every month from the end of the first month itself from the date of their allotment ?? You are partially right. Yes, I am suggesting you to sell 1% of your investment in these bonds every month to get a sort of monthly income, but not from the end of the first month itself, but starting from the 13th month of your investment from tax planning point of view.

How it works?

Suppose, you fall in the higher tax bracket of 30% or 20% and invest Rs. 1 lakh in any of the tax-free bond issues, HUDCO, IIFCL, PFC, IRFC, NHB or any other company. Stay invested with these bonds for at least one complete year and from the thirteenth month onwards, you can start selling 1% of your investment every month. If you do that every month, you are going to get 1% of your investment i.e. approximately Rs. 1,000, for 100 months or 8 years & 4 months. This way it is going to last till 9 years and 4 months from the date of your investment and that is how it would be helpful if your investment is for 10 years.

Assumptions

* The investor takes tax-free bonds in a demat account, in order to sell them on a monthly basis or periodicity of his/her choice. It is very difficult to find a buyer for the physical bonds.

* After each annual interest payment, tax-free bonds are assumed to appreciate in value exactly equal to the monthly value of their annual interest. So, if the annual interest is 8.76%, then the market price of the bond is assumed to appreciate by 0.73% every month i.e. 8.76% / 12 months.

* Tax is paid as & when each monthly cash inflow is received.

* Brokerage charges on sale of the bonds have been ignored as they vary across different broking houses and across different investors. Investors should consider them before taking a final decision.

Let me try to explain you the monthly cash inflow table. Interest earned on IIFL NCDs is taxable as per the tax slab of the investor, so it has been termed as the “Normal Tax”, whereas long term capital gain tax on listed tax-free bonds is 10.30%.

IIFL NCDs post-tax monthly inflow = Interest Rs. 1,000 – Tax Rs. 309 @ 30.90% = Rs. 691.

IIFL NCDs post-tax monthly inflow = Interest Rs. 1,000 – Tax Rs. 206 @ 20.60% = Rs. 794

IIFL NCDs post-tax monthly inflow = Interest Rs. 1,000 – Tax Rs. 103 @ 10.30% = Rs. 897

HUDCO TFBs post-tax monthly inflow (Rs. 1,006.55 – for understanding purposes)

Sale Price of 1 Bond (13th month) = Rs. 1,000 * (1 + 8.76%/12) = Rs. 1,007.30

Long Term Capital Gain (LTCG) = Rs. 1,007.30 – Rs. 1,000 = Rs. 7.30

Long Term Capital Gain Tax = 10.30% of Rs. 7.30 = Rs. 0.7519

HUDCO TFBs post-tax monthly inflow = Rs. 1,007.30 – Rs. 0.7519 = Rs. 1,006.5481 (or Rs. 1,006.55)

If the investment is for 20 years or 15 years?

If your investment is for 20 years, you can either cut down your sale of these bonds by half or you can double your investment, in order to get the same monthly inflows for the next 16 years & 8 months, from next year onwards. You can do it with 15 years option also in a similar way. But, please mind it that to trade in these bonds, you are required to sell at least one bond. So, to have such monthly income for 15-20 years, you need to invest at least Rs. 1,50,000 to Rs. 2,00,000.

What about its annual interest?

I would call it a bonus. You can use it whichever way you want. You can reinvest it next year in any of the investment instruments you want. You can use it for meeting any of your other financial goals. You can go on a holiday with that money. You can use it along with your so called monthly income (sale of these bonds every month).

Basic idea behind it?

It is similar to a systematic withdrawal plan (SWP) of mutual funds. Though it must be clear to you by now, but I want to reiterate it here that the first basic idea behind this way out is to make tax-free bonds comparable to IIFL NCDs like instruments, which are giving 1% monthly interest to its investors throughout its holding period, but the interest is taxable as per the tax slabs of the investors.

The next basic purpose is to make your investment as tax efficient as it is possible. That is why I have suggested here to start selling these bonds from the next year onwards. You are required to pay only 10% tax on your long term capital gains you make by selling these bonds after one year.

If you really require regular inflows from the beginning itself, you can start selling these bonds from the beginning itself. The maximum you would be required to pay in tax in the first year would be exactly equal to the tax you are going to pay on the interest income earned from the IIFL NCDs.

Though I am still unaware of any major fallout of this technique of getting monthly inflows out of our tax-free bond investments, I am sure there must be some. I would like you people to do some brainstorming and find out at least one or two for me, so that we can try to work more on this idea and make it even better, if we can.

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]

Two debt issues opened for subscription on September 17 – India Infoline Finance Limited (IIFL) 12% NCDs and HUDCO 8.76% Tax-Free Bonds. Both these issues have seen reasonably good response from the investors. But, still there are many people who have not been able to take a decision and probably require some more help or some detailed research. Let us try to do a comparative analysis of the two.

A couple of days ago Vijay asked me to illustrate IIFL NCDs with a numeric example, involving rupee values of return.

Vijay September 17, 2013 at 10:26 am

Can you illustrate IIFL with some numeric example. I am sure, most of the reader does not understand yield definition very well.

As I did not want to edit the original post, I could not fulfill his desire. But, now I can get his request fulfilled by comparing numeric examples of both IIFL NCDs and HUDCO tax-free bonds.

There are many factors which should determine your decision and I am going to state those factors here:

Maturity Period – As interest rates hit troughs, the investors should go for the shortest possible period of investments and when interest rates hit peaks, the investors should go for the longest possible period of investments. Though it is very difficult to determine these troughs and peaks, I think the current period is one of those of higher interest rates in the recent history with the 10-year G-Sec bond yields crossing 9% psychological mark.

IIFL has a maturity period of 36 months & 60 months, whereas HUDCO is available with tenors of 10 years, 15 years and 20 years. So, which one should you invest in? If you think there is still more room for interest rates to rise, you should go for IIFL NCDs and if you agree with my view on the interest rates, then you should go for the HUDCO 20-year or 15-year bonds.

Coupon Rates & Taxability – While HUDCO is offering tax-free interest rates of 8.74%, 8.76% and 8.39% for 20 years, 15 years and 10 years respectively, IIFL has fixed a single taxable rate at 12% for both of its maturity periods, 36 months & 60 months.

Investor’s Tax Bracket – First, you should determine your income tax bracket for the current financial year and try to foresee it for those financial years also till which you are planning to stay invested in these NCDs/bonds. If you fall in one of the higher tax brackets, then I think it is better to invest in HUDCO tax-free bonds as paying tax on 12% interest income from IIFL would make it 8.29% in the 30% tax bracket and 9.53% in the 20% tax bracket.

I would say earning 8.76% with tax-free bonds with safety of a government company and ‘AA+’ rating clearly makes me favour HUDCO bonds. If one is not liable to pay any tax on the interest income earned, then only I think IIFL NCDs would score over HUDCO bonds. It is up to the investors to decide if they fall in the 10% tax bracket.

Frequency of Interest Payments – While IIFL is offering annual as well as monthly interest payment options, HUDCO has only one interest payment option and that is annual. It makes IIFL NCDs attractive for those investors who want monthly interest payment option.

Ratings, Safety & Business Model – IIFL NCDs are rated ‘AA’ while HUDCO bonds are rated ‘AA+’, a difference of just one notch. But, practically there is a lot of difference. IIFL is a private company and a 98.87% subsidiary of India Infoline Group. It is a relatively newer company with business model concentrated in two major segments, mortgage loans and gold loans.

HUDCO is a wholly-owned corporation of the government of India. It has a relatively stable business model with financing of housing and urban infrastructure in many major cities across India. IIFL’s business model is relatively riskier than HUDCO. This factor also goes in HUDCO’s favour.

Issue Size – While HUDCO is planning to raise Rs. 4,809.20 crore from its issue, IIFL wants to raise Rs. 1,050 crore. How the issue size matters? The bigger the issue size, the higher is the liquidity in the secondary markets. Higher liquidity provides easier exit option to its investors. So, I think the issue size is also positive for HUDCO bonds.

Listing – While the issue size of IIFL is smaller than HUDCO’s issue size, it is going to list on both the stock exchanges, Bombay Stock Exchange (BSE) as well as National Stock Exchange (NSE). HUDCO bonds are going to list only on the BSE. Though the issue size of HUDCO is big and there will not be any liquidity problem as such, but still it would have been better if the company could have got it listed on the NSE as well. This augurs well for IIFL NCDs.

While the whole world cheers the US Federal Reserve’s policy decision not to taper QE3 and to keep its bond-buying programme steady at $85 billion per month, I think it presents a perfect platform to the Governor of RBI, Dr. Raghuram Rajan, to bring back the much awaited normalcy in the Indian bond and currency markets. If he succeeds in doing that, I think the bond investors are up for a really good time. They should then be subscribing to these bonds at these really attractive interest rates.

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]

After a reasonably good response to the REC tax-free bonds, the next eligible company to come up with such an issue is Housing and Urban Development Corporation Limited (HUDCO). The company will be launching its issue from the coming Tuesday, September 17.

The rates the company is going to offer in this issue are higher than the rates offered by REC in its issue, which is still open and getting closed on September 16. There are two reasons for it, firstly, HUDCO issue is ‘AA+’ rated and that is why it can offer rates 10 basis points (or 0.10%) higher than any ‘AAA’ rated issuer. Secondly, the average G-Sec rates have been ranging higher in the past 10-20 days than they were earlier when REC came up with its issue.

As compared to REC’s 8.26% (10Y), 8.71% (15Y) and 8.62% (20Y), HUDCO is offering 8.39%, 8.76% and 8.74% rate of interest for the respective tenors.

Though the interest will be paid annually, I do not know the interest payment date as yet, as the final prospectus filed on September 11 is still not available on SEBI’s website, on BSE’s website, on HUDCO’s website and not even on any of the lead managers’ websites. It is quite disappointing for me not to have the prospectus available for public reference even three days prior to the issue opening date.

HUDCO is allowed to raise Rs. 5,000 crore from tax-free bonds this financial year, out of which it has already raised Rs. 190.80 crore through private placement. So, now it plans to raise the remaining Rs. 4,809.20 crore through this public issue, including the green-shoe option of Rs. 4,059.20 crore. The base issue size is Rs. 750 crore.

The official closing date of the issue is October 14 and the company may extend or preclose the issue, depending on the investors’ response to the issue.

There are many things which are common in this issue and the REC issue, so I will quickly state those features which are different in this issue.

Rating of the issue – CARE and India Ratings have assigned a rating of ‘AA+’ to this issue, which is also ‘Secured’ in nature. HUDCO is wholly-owned by the government of India, so the investors’ investment is quite safe.

Listing – HUDCO will get these bonds listed only on the Bombay Stock Exchange (BSE). The allotment and the listing will happen within 12 working days from the closing date of the issue. Investors can apply for these bonds either in physical form or in demat form, as per their comfort and requirement.

Interest on Application Money & Refund – The investors will get interest on their application money also, from the date of investment till the deemed date of allotment, at the same rate of interest as the applicable coupon rate is. Unlike REC issue which is to pay 5% p.a. interest on the refund money, HUDCO will pay the applicable coupon rate.

Categories of Investors & Basis of Allotment – The investors again have been classified in the following four categories and each category will have certain percentage of the issue reserved for the allotment:

Category I – Qualified Institutional Bidders (QIBs) – 10% of the issue is reserved

Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved

Category III – High Net Worth Individuals including HUFs, NRIs & QFIs – 30% of the issue is reserved

Category IV – Resident Indian Individuals including HUFs, NRIs & QFIs – 40% of the issue is reserved

QIBs portion had 20% of the issue reserved in the REC issue and after observing their response in that issue, their reserved portion has been reduced to 10% in this issue. Category III HNI investors will get this 10% share of the pie. NRIs are eligible to invest in this issue as well, on a repatriation basis as well as on non-repatriation basis. Qualified Foreign Investors (QFIs) are also eligible.

Minimum & Maximum Investment – There is no change in the minimum investment requirement of Rs. 5,000 i.e. at least 5 bonds of Rs. 1,000 face value each. Retail Investors’ investment limit stands at Rs. 10 lakhs, beyond which they will be considered as HNIs and will get a lower rate of interest.

Interest rates of this issue look very attractive to me. Earlier I used to say that the investors in the 30% or 20% tax bracket should consider these bonds, but now I advise investors even in the 10% tax bracket to go for these bonds. Though not strictly comparable, these bonds are attractive even against IIFL NCDs or Muthoot NCDs.

I think the way Indian rupee and the stock markets have recovered in the past 10 days or so, the G-Sec yields should also start falling soon. Going forward, I think the rates should not be higher than these HUDCO bonds, unless US Fed Reserve has something very dramatic in store for us in its meeting on September 17-18.

Link to Download the Application Form of HUDCO Tax-Free Bonds

If you need any further info or you want to invest in these bonds, you can contact me at +919811797407

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]

SREI Infrastructure Finance Limited is going to launch its second public issue of non-convertible debentures (NCDs) of the current financial year 2013-14 from Monday, August 24th. It is going to offer a maximum of 11.75% per annum to the individual investors for 5 years tenor and a minimum of 10.35% per annum to the institutional investors for 3 years tenor.

SREI Infra plans to raise Rs. 200 crore from this issue, including the green-shoe option of Rs. 100 crore. The issue is scheduled to close on September 17th or earlier, depending on the response for the issue. NCDs will be allotted on a first-come-first-serve basis.

Categories of Investors & Basis of Allotment – The investors would be classified in the following three categories and each category will have certain percentage fixed for the allotment:

Category I – Institutional Investors – 20% of the overall issue size

Category II – Non-Institutional Investors (NIIs) including corporates – 20% of the issue

Category III – Individual Investors including Hindu Undivided Families (HUFs) – Rest 60% of the issue

NRIs and foreign nationals among others are not eligible to invest in this issue.

Tenors and Rate of Interest

SREI came up with its first issue in April this year and as compared to that issue, the second issue looks attractive from the retail investors’ point of view. As compared to 10.75% for 3 years and 11% for 5 years in its last issue, this time the company is offering 11.50% and 11.75% respectively.

The bonds will be issued for a tenor of 3 years, 5 years and 75 months (6 years and 3 months) with monthly interest, annual interest and cumulative interest options. The monthly interest option is available only with 5 years period and will carry coupon rate of 11.16%, which effectively is 11.50% per annum.

“Double Your Money” Option – Series V NCDs offer to double your money in a period of 6 years and 3 months and effectively yield 11.72% per annum. Though it is quite attractive to hear doubling of money, I think it is better to go for shorter tenors in case of company NCDs.

Ratings & Nature of NCDs – CARE has assigned ‘AA-’ rating and Brickwork Ratings has given ‘AA’ rating to this issue. Moreover, these NCDs are secured in nature and the claims of its investors will be superior to the claims of any unsecured creditors of the company.

Listing, Demat & TDS – These NCDs are proposed to be listed on the Bombay Stock Exchange (BSE) only. Investors have the option to apply these NCDs in physical form as well as demat form, except for Series III NCDs, which carry monthly interest and will be allotted compulsorily in the demat form.

The interest earned will be taxable as per the tax slab of the investor and TDS will be applicable if the interest amount exceeds Rs. 5,000. But, NCDs taken in the demat form will not attract any TDS on the interest income.

Minimum Investment – There is a minimum investment requirement of Rs. 10,000 i.e. at least 10 bonds of face value Rs. 1,000.

Profile & Financials of SREI Infrastructure Finance Limited – SREI was initially registered with the RBI as a deposit taking non-banking financial company (NBFC). Effective March 31, 2011, SREI got converted into non-deposit taking NBFC and the RBI classified it as an Infrastructure Finance Company (IFC). Later, SREI got notified as a Public Financial Institution (PFI) by the Ministry of Corporate Affairs.

The company provides financial services to its customers engaged in infrastructure development and construction, with particular focus on power, road, telecom, port, oil and gas and special economic zone (SEZ) sectors in India with a medium to long term perspective.

SREI has a national presence with a network of 198 offices all over India and over Rs. 33,330 crore of consolidated assets under management (AUM). SREI’s loan disbursements have grown at a CAGR of approximately 44% in the last four years, with consolidated disbursements of Rs. 15,667 crore for the period ended March 31, 2013 and Rs. 18,600 crore for the year ended March 31, 2012.

Total income on a standalone basis for the period ended March 31, 2013 and March 31, 2012 stood at Rs. 1,666 crore and Rs. 1,181 crore respectively. Net profit for the same periods was registered at Rs. 94.96 crore and Rs. 57.96 crore respectively.

The grey area, with which the whole of the infrastructure finance industry is suffering, has also affected SREI Infra badly. Gross NPAs of the company as on March 31, 2013 stood at 2.77% as against 1.58% as on March 31, 2012, while Net NPAs were at 2.30% as against 1.18%.

SREI Infra NCDs are definitely better than some of the riskier company FDs like Unitech, Gitanjali Gems, Jaiprakash Associates or other lesser known companies. Investors, who are willing to take low to moderate risk and looking for higher returns than bank FDs or comparable company FDs, can think of investing in these NCDs. But, I think it should not be more than 5 to 10% of your total debt portfolio. Investors in the 30% tax bracket should definitely wait for the tax-free bonds or go for the tax-efficient debt funds or FMPs, as these investments should result in higher effective yields for them.

Link to Download the Application Form

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]

Rural Electrification Corporation (REC) will be launching the first public issue of tax-free bonds for the current financial year from 30th of this month. The company is offering quite attractive interest rates to the retail individual investors with 8.26% for 10 years, 8.71% for 15 years and 8.62% for 20 years. These rates are higher by approximately 0.70% to 1.50% as compared to the rates offered last year.

REC plans to raise Rs. 3,500 crore from this issue, including the green-shoe option of Rs. 2,500 crore. Though the official closing date of the issue is September 23rd, I think the issue should get closed before that due to oversubscription.

The government has allowed REC to issue Rs. 5,000 crore worth of tax-free bonds this financial year and the CBDT notification has mandated a minimum of 70% of this amount to be raised from public issues. As the issue size is Rs. 3,500 crore, if it gets fully subscribed this time itself, I think REC would raise rest of the money through private placements only and it will become the last issue of REC this financial year.

NRIs, QFIs & “Retail Individual Investor” – Non-Resident Indians (NRIs) on repatriable as well as non repatriable basis and Qualified Foreign Investors (QFIs) are also eligible to invest in this issue. The scope of a retail individual investor, investing upto and including Rs. 10 lakhs, has got broadened with the introduction of NRIs and QFIs (as individuals). It includes Hindu Undivided Families (HUFs) also through the Karta.

So, the investors have been classified into the following four categories:-

I – Qualified Institutional Bidders (QIBs) – 20% of the issue reserved

II – Non-Institutional Investors (NIIs) – 20% of the issue reserved

III – High Net Worth Individuals including HUFs, NRIs & QFIs – 20% of the issue reserved

IV – Retail Individual Investors including HUFs, NRIs & QFIs – 40% of the issue reserved

Interest Payment Date & Record Date – As this question gets asked by many of the investors throughout the year, it is better to mention it here itself as the date is known in advance this time. Interest will be paid on December 1st every year and the record date will be 15 days prior to that.

No Cumulative Option – There is no option of taking cumulative interest at the time of maturity with these bonds. Interest will be paid annually.

Safety, Ratings & Nature of Bonds – Being a ‘Navratna’ PSU, REC offers a high degree of safety as far as your investment is concerned and that gets reflected in the ratings assigned to this issue. The issue has been rated ‘AAA’ by four rating agencies, CRISIL, CARE, India Ratings and ICRA. It is the highest rating given by each of these companies. Also, these bonds are secured in nature against certain assets of the company.

Listing – REC bonds will get listed on the Bombay Stock Exchange (BSE) within 12 working days from the closing date of the issue. Investors have the option to apply these bonds as per their choice, either in physical form or in demat form.

TDS & Minimum Investment – As these are tax-free bonds, there is no question of TDS getting deducted, whether you take them in physical form or demat form. Minimum investment required is Rs. 5,000 only i.e. 5 bonds of Rs. 1,000 face value each.

Interest on Application Money & Refund – REC will pay interest to the successful allottees at the applicable coupon rate and at 5% per annum to the unsuccessful allottees.

Tax Treatment on Sale – Listed bonds held for more than 12 months qualify as long term capital assets and if sold thereafter, would attract a flat 10% capital gain tax, without indexation benefit. However, if the bonds are sold prior to holding them for more than 12 months, then short-term capital gain tax would be applicable, as per the tax slab of the investor.

Key Attractions of these Bonds: There were many issues with the tax-free bonds issued last year. There was a huge difference between the interest rate paid to the retail investors and the interest rate paid to other investors. Also, the subsequent buyer from the secondary markets was to get a lower rate of interest. Moreover, the cut from the G-Sec rate was also set on a higher side.

I think most of those issues have got rectified this year. Here are some of the key attractions of these bonds this year:

High Interest Rates – Due to the falling rupee and the unsuccessful measures taken by the Government and the RBI to control it from further fall, the yields of the benchmark government securities (G-Secs), against which the coupon rates of these tax-free bonds get fixed, have risen sharply in the last 45 days or so. 10-year benchmark yield touched a high of 9.47% before falling sharply to 8.25%. Thanks to this jump, the company has been able to offer such attractive coupon rates, especially for the 15 years period.

A word of caution. 10-year benchmark yield has again jumped back to close at 8.78% on August 27th. If the economic fundamentals of the country continue to deteriorate at the same speed as they have been doing, the yields could keep moving higher and the rupee could keep falling further against the dollar. But, I still hope India would come out of the current crisis soon and as the macroeconomic things get stabilised, these rates would look highly attractive again.

High Interest Rates, even if bought from the Secondary Markets – As per the CBDT notification – “The higher rate of interest, applicable to RIIs, shall not be available in case the bonds are transferred by RIIs to non retail investors”. So, the interest rates earned by the retail individual investors this year would remain higher even if they buy these bonds from the secondary markets subsequent to the offer period.

Your eligibility for a higher rate will depend on the number of bonds held in your name on the record date and the same will get tracked by your PAN number. Your holding should not be more than 1000 bonds per issue on the record date to get higher rate of interest.

Till last year, only the first allottees were eligible for a higher rate of interest and the subsequent buyers from the secondary markets were supposed to get a lower rate of interest. This factor will encourage the retail investors to participate in the secondary markets and thereby result in higher liquidity.

Low Differential – The differential between the rates offered to the retail individual investors and the other categories of investors has been cut down to 25 basis points (or 0.25%) only, as compared to last year’s 50 basis points (or 0.50%). This is the best step that has been taken this year. This factor would attract higher participation from the other categories of investors, both during the initial offer period as well as in the secondary markets.

I honestly think that these tax-free interest rates are very attractive. If I compare these rates with the interest rates on bank fixed deposits, the rates look quite similar, but with huge difference of tax applicability. I seriously hope India’s macroeconomic picture should start looking better in the days to come, only then we will be able to enjoy these high rates, otherwise inflation would again eat up all fruits of our hard work.

Link to Download the Application Forms of REC Tax-Free Bonds

If you need any further info or you want to invest in these bonds in Delhi/NCR, you can contact me at +919811797407

JPMorgan US Value Equity Offshore Fund is a new fund that will be launched soon, and I came to know about it when Kapil Visht commented about it earlier this week.

The last couple of years has seen US based funds perform very well in India (Read: Utility of US Based Funds in India), and I am certain that mutual fund houses will launch a lot more US based funds in the days to come.

There will be a positive feedback loop where more people learn about US based funds, and ask about it — in turn the funds will launch their own schemes and that will get publicity thereby making more people aware about them, and from 4 the odd fund we have right now the figure is going to reach double digits soon.

JPMorgan US Value Equity Offshore Fund is a fund of funds which will invest in JPMorgan Funds – US Value Fund, which is a fund that invests in American stocks. Interestingly, JPMorgan Funds – US Value Fund is not listed in the US but listed in Luxembourg. The fund’s webpage is located here.

This means that the fund itself trades in Euros while the underlying assets are in USD. For Indian investors, does this add another layer of complexity – Indians invest in INR in a fund that trades in Euros which then buys assets in USD?

The original fund prospectus states that this is a currency hedged fund which means that the USD – Euro currency changes shouldn’t affect your returns but in real terms I don’t know if this is really 100% hedged or not.

I say that because this is an actively managed fund so you can’t simply compare it with the benchmark and see what the difference is. Currently, the returns for this fund is as follows:

Time Frame	US Value Fund	S&P 500
1 month	-1.94%	-1.50%
3 months	3.53%	2.30%
1 year	20.91%	20.20%
3 years	58.74%	49.10%
5 years	27.71%	25.65%

Performance (as at 30/06/13)
As you can see this actively managed fund has done well for itself in the last few years and as far as past record goes – this active fund has done well. The expenses are fairly high for this fund, and because the fund of fund structure means double expenses, the Indian investor will pay an additional layer of fee over and above the original fund.

At present the options are limited if you wanted to invest in the US by means of a locally listed mutual fund, and I feel this is a good new scheme that gives Indian investors another good option.