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]

Having gained 20-30% on their investments made in tax-free bonds a couple of years back, investors’ hunger for tax-free bonds has grown considerably. With IRFC issue worth Rs. 4,532 crore getting 2.38 times oversubscribed on the first day itself, there seems to be no slowdown in the subscription demand for these bonds.

To cash-in on this huge demand and ending a long wait for its tax-free bonds, NHAI, which filed its draft shelf prospectus in the first week of October, will be launching its first tranche of tax-free bonds from the coming Thursday i.e. 17th December. As the issue size is considerably quite big at Rs. 10,000 crore, I hope most of the retail investors are able to get their share of bonds allotted at least this time around. The issue is officially scheduled to remain opened for two weeks and will get closed on December 31st.

Before we analyse it further, let us first quickly check the salient features of this issue:

Size of the Issue – NHAI is authorized to raise Rs. 24,000 crore from tax free bonds this financial year, out of which the company has already raised Rs. 3,872 crore by issuing these bonds through a private placement. Out of the remaining Rs. 20,128 crore, the company will raise Rs. 10,000 crore in this issue.

Coupon Rates on Offer – With rising G-Sec yield, earlier IRFC and now NHAI, both have been able to offer higher coupon rates as compared to PFC and REC. While IRFC offered 7.53% for the 15-year period and 7.36% for the 10-year period, NHAI is offering an even higher rate of interest at 7.60% for 15 years and 7.39% for 10 years.

For the non-retail investors, these rates would be lower by 25 basis points (or 0.25%).

Rating of the Issue – CRISIL, ICRA, CARE and India Ratings consider investing in these bonds to be safe and as a result, have assigned ‘AAA’ rating to the issue. Also, 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.

NRI/QFI Investment NOT Allowed – Unlike PFC, REC & IRFC issues, Non-Resident Indians (NRIs) won’t be able to make investment in this issue. Qualified Foreign Investors (QFIs) are also not eligible to invest in this issue.

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) – 20% of the issue is reserved i.e. Rs. 2,000 crore

Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved i.e. Rs. 2,000 crore

Category III – High Net Worth Individuals including HUFs – 20% of the issue is reserved i.e. Rs. 2,000 crore

Category IV – Resident Indian Individuals including HUFs – 40% of the issue is reserved i.e. Rs. 4,000 crore

Allotment on First Come First Served 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.

Listing & Allotment – NHAI has decided to get these bonds listed on both the stock exchanges, National Stock Exchange (NSE) as well as 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.

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. Whether you apply for these bonds in demat or physical form, the interest payment will still get credited to your bank account through ECS.

Also, 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 – These tax-free bonds are freely tradable and do not carry any lock-in period. The investors may sell them at the market price whenever they want after these bonds get listed on the stock exchanges within 12 working days of the closing date.

Interest on Application Money & Refund – Successful allottees will earn interest at the applicable coupon rates i.e. 7.39% p.a. for 10 years and 7.60% 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 – NHAI will make its first interest payment on April 1st next year and subsequent interest payments will also be made on April 1 every year, except the last interest payment, which will be made to the bondholders along with the redemption amount on the maturity date.

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?

NHAI tax-free bonds issued in February 2014 are quoting at a yield to maturity (YTM) of 7.28% with the closing market price of Rs. 1,186.53. Also, bonds issued in January 2012 are carrying 7.24% yield and last traded at Rs. 1,096 on Friday.

Taking a clue from these already listed bonds, I think subscribing to the 15-year option makes more sense. Risk-averse investors with a long term view should definitely invest in these bonds. In the short-term as well, you can expect some listing gains with these bonds.

Application Form for NHAI 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 NHAI 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]

IRFC 7.64% Tax-Free Bonds Issue – Tranche II – March 2016 Issue

It has been a very long time since NHAI filed the draft shelf prospectus for its tax-free bonds issue in the first week of October. Investors have been desperately waiting for a bigger issue as all the previous issues by NTPC, PFC and REC have left them fairly disappointed.

All these issues were of smaller sizes of Rs. 700 crore each and got hugely oversubscribed on the first day itself. But, before NHAI could make it, IRFC has taken the lead to launch its tax-free bonds from the coming Tuesday i.e. December 8th.

As the issue size is quite big, I hope it does not get oversubscribed on the first day itself and the retail investors get full allotment at least this time around. The issue is scheduled to get closed on December 21st.

Before we analyse it, let us first quickly check the salient features of this issue:

Size of the Issue – IRFC is authorized to raise Rs. 6,000 crore from tax free bonds this financial year, out of which the company has already raised Rs. 1,468 crore by issuing these bonds through private placements. The company will raise the remaining Rs. 4,532 crore in this issue.

Coupon Rates on Offer – REC offered 7.43% as its highest rate of interest for the 20-year investment period. Due to a sharp reversal in G-Sec rates, coupon rates for this issue have risen by 0.07% to 0.19%. IRFC will offer yearly rate of interest of 7.32% for its 10-year option, 7.53% for the 15-year option and 7.50% for the 20-year option to the retail investors investing less than or equal to Rs. 10 lakh.

As always, these rates would be lower by 25 basis points (or 0.25%) for the non-retail investors.

Rating of the Issue – CRISIL, ICRA and CARE consider investing in these bonds to be safe and as a result, have assigned ‘AAA’ rating to the issue. Also, these bonds are ‘Secured’ in nature and in case of any default, the bondholders would carry a right to make claim on certain assets of the company.

NRI/QFI Investment Allowed – Non-Resident Indians (NRIs) are eligible to invest in this issue, on a repatriation basis as well as non-repatriation basis. Unlike earlier issues, Qualified Foreign Investors (QFIs) are also allowed to invest in this issue.

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. 679.80 crore

Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved i.e. Rs. 906.40 crore

Category III – High Net Worth Individuals including HUFs & NRIs – 25% of the issue is reserved i.e. Rs. 1,133 crore

Category IV – Resident Indian Individuals including HUFs & NRIs – 40% of the issue is reserved i.e. Rs. 1,812.80 crore

Allotment on First Come First Served 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.

Listing & Allotment – IRFC has decided to get these bonds listed on both the stock exchanges, National Stock Exchange (NSE) as well as 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.

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. Whether you apply for these bonds in demat or physical form, the interest payment will still get credited to your bank account through ECS.

Also, even if you get these bonds allotted in an electronic form, 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 – These tax-free bonds are freely tradable and do not carry any lock-in period. The investors may sell them at the market price whenever they want after these bonds get listed on the stock exchanges within 12 working days of the closing date.

Interest on Application Money & Refund – Successful allottees will earn interest at the applicable coupon rates 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 – IRFC will make its first interest payment on October 15 next year and subsequent interest payments will also be made on October 15 every year.

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?

Long-Term Potential – While the sentiment for real estate and gold investments has already been pretty negative, stock markets are once again testing risk appetite of the retail investors. Conservative investors can do nothing but invest in fixed deposits or explore some other relatively safer options like debt funds or tax-free bonds.

A sharp reversal in the G-Sec yield has again given an opportunity to the investors to invest at higher coupon rates. I personally think that India should have a relatively lower inflationary scenario in the next 3-5 years as compared to the previous few years. If you also have the same view and if you want to earn tax-free interest on your investments for the longest possible period of time, then I think you should opt for the 20-year bonds which carry 7.50% rate of interest. The 15-year option with 7.53% is also equally attractive with a relatively shorter investment period.

Listing Gains – IRFC is offering 7.53% rate of interest for its 15-year option, which is also the highest rate of interest for its bonds across all three options. NTPC issue also carried the same 7.53% rate of interest for its 15-year option. As you can check from the table above, NTPC 15-year bonds last traded at Rs. 1,047 on Friday on the NSE i.e. a 4.7% premium to its issue price. Even if I consider Rs. 12-15 premium to be the accrued interest for the 2-month period since listing, these bonds are still earning a natural premium of approximately 3-3.50%.

Even the REC 15-year bonds, which got listed on November 5th on the BSE and carried a lower rate of interest of 7.34%, got traded at Rs. 1,030 on Friday i.e. a premium of 3% including one month’s accrued interest. This observation makes me believe that there is a scope of making some quick short-term listing gains with IRFC bonds as well.

Application Form for 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 IRFC 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]

Amid a mad rush and healthy listing gains for NTPC & PFC tax-free bonds, Rural Electrification Corporation (REC) will launch its issue of tax-free bonds from tomorrow i.e. October 27th. Like NTPC & PFC issues, this issue will also be of a smaller size i.e. only Rs. 700 crore. Though the issue is scheduled to close on November 4, given its smaller size, it is likely to get oversubscribed on the first day itself and get closed soon after that.

Since the RBI cut the Repo Rate by 50 basis points in its monetary policy last month, the 10-year benchmark G-Sec bond yield had fallen from 7.72% to 7.50% or so. But, for the past few days, it has remained steady in the range of 7.50% to 7.60%. Based on that, the coupon rate offered by REC has been fixed at 7.14% p.a. for the 10-year tenure option. After this issue, NHAI would launch its issue of tax-free bonds and I think it would carry interest rates which would fall more or less in this range only.

Before we take a decision to invest in this issue or not, let us first quickly check the salient features of this issue:

Size of the Issue – REC is authorized to raise Rs. 1,000 crore from tax free bonds this financial year, out of which the company has already raised Rs. 300 crore by issuing these bonds in private placement. The company will raise the remaining Rs. 700 crore from this issue.

Coupon Rates on Offer – Due to falling G-Sec rates, coupon rates for this issue have also fallen by 0.17% to 0.22%. REC will offer yearly rate of interest of 7.14% for its 10-year option, 7.34% for the 15-year option and 7.43% for the 20-year option to the retail investors investing less than or equal to Rs. 10 lakh.

As always, these rates would be lower by 25 basis points (or 0.25%) for the non-retail investors.

Rating of the Issue – CRISIL, ICRA, CARE and India Ratings have assigned ‘AAA’ rating to the issue due to the fact that REC is a government company with reasonably decent fundamentals. Also, these bonds are ‘Secured’ in nature and in case of any default, the bondholders would carry a right to make claim on certain assets of the company.

NRI Investment Allowed – Non-Resident Indians (NRIs) are also eligible to invest in this issue, on a repatriation basis as well as non-repatriation basis.

QFI Investment – Qualified Foreign Investors (QFIs) are not allowed to invest in this issue.

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) – 10% of the issue is reserved i.e. Rs. 70 crore

Category II – Non-Institutional Investors (NIIs) – 25% of the issue is reserved i.e. Rs. 175 crore

Category III – High Net Worth Individuals including HUFs & NRIs – 25% of the issue is reserved i.e. Rs. 175 crore

Category IV – Resident Indian Individuals including HUFs & NRIs – 40% of the issue is reserved i.e. Rs. 280 crore

Allotment on First Come First Served 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.

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

Demat/Physical Option – Like PFC issue, it is not mandatory to have a demat account to apply for these bonds. Investors will have the option to subscribe to them in physical or certificate form as well. Demat or physical form, interest payment will still get credited to the investors’ bank accounts through ECS.

Also, even if you get these bonds allotted in an electronic form, 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 – These tax-free bonds are freely tradable and do not carry any lock-in period. The investors may sell them at the market price whenever they want after these bonds get listed on the stock exchange.

Interest on Application Money & Refund – Successful allottees will earn interest at the applicable coupon rates 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 – REC will make its first interest payment on December 28, 2015. However, next year onwards, interest will be paid on December 1 every year like it is done with its bonds issued in previous years.

Should you invest in this issue?

NHAI tax-free bonds issue is likely to hit markets within next 10 working days or so. Between REC and NHAI, I would personally opt for the NHAI bonds as I think interest rate for its bonds would be very close to the rates offered by REC in this issue. Moreover, NHAI’s issue size would be a big one as compared to this issue and therefore it would increase our chances of getting full allotment as against this issue, which I think will again get oversubscribed on the first day itself.

Fundamentally, I think both companies are financial stable and carry government backing in difficult times. So, I would give this issue a miss and prefer investing my money with NHAI.

Application Form for REC 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 REC 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]

NTPC Tax-Free Bonds, which got oversubscribed by 6.31 times last month on September 23, have finally got allotted yesterday. As the issue got oversubscribed by 6.60 times in the Retail Investors’ category, the investors have been allotted 15.6% to 15.7% of the applied number of bonds.

Against an application size of Rs. 10 lakhs, 156-157 bonds have been allotted and the remaining amount will be refunded to the investors starting today itself. Some investors, who applied for 10 bonds, have been allotted 1-2 bonds only.

Allotment process is expected to get completed by today itself and I expect the bonds to get listed on the stock exchanges BSE and NSE earliest by tomorrow. NTPC has been able to raise Rs. 700 crore with this issue.

Here you have the Basis of Allotment among all categories of investors:

If you want to check the allotment status, here is the link of Karvy Computershare – http://karisma.karvy.com/investor/jsp/IDFC-APP.jsp

Karvy Computershare is the Registrar for the issue and if you have any query related to your application, allotment process or refund of application money, you can contact Karvy at 1800 3454 001 or write a mail at [email protected]

Investors, who are disappointed with such a small number of bonds getting allotted, will get an opportunity with NHAI to get full allotment. NHAI is expected to come up with its bonds issue by October-end with an issue size of Rs. 11,200 crore. I think with lower coupon rates, euphoria related to these bond issues will get settled down very soon now.

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]

People are calling it a Pre-Diwali gift by Dr. Raghuram Rajan. Yes, I am talking about the Repo Rate cut of 50 basis points (or 0.50%) by the RBI Governor today. Indeed, it is a surprisingly positive move by Dr. Rajan for overall incremental growth of the Indian economy. Stock market and bond market, both cheered with joy after the announcement came in at 11 O’Clock in the morning. While Sensex closed up 162 points, the benchmark 10-year G-Sec yield fell sharply lower to close at 7.611% as against Monday’s 7.727%.

While it is an extremely cheerful event for the existing investors, it is not so good news for the investors waiting on the sidelines to invest in the upcoming tax-free bond issues, as it would mean the coupon rates would now fall further from here. Investors, who invested in these bonds in FY 2013-14, were already finding the current offered rates to be unattractive as compared to the rates offered at that time. So, a further fall from the rates offered during the NTPC issue last week would leave more disappointment for the investors.

But, before an impact of the Repo rate cut starts getting reflected in future issues, Power Finance Corporation (PFC) would be giving you an opportunity to lock-in your investible surplus at a relatively higher rates. PFC is coming out with its issue of tax-free bonds from the coming Monday i.e. October 5th and it would be offering 7.60% rate of interest for the 20-year option, 7.52% for the 15-year option and 7.36% for the 10-year option.

Before we take a decision to invest in this issue or not, let us first quickly check the salient features of this issue:

Size of the Issue – PFC is authorized to raise Rs. 1,000 crore from tax free bonds this financial year out of which the company has already raised Rs. 300 crore by issuing these bonds in private placement. The company will raise the remaining Rs. 700 crore from this issue.

Coupon Rates on Offer – As mentioned above as well, PFC will offer yearly rate of interest of 7.36% for its 10-year option, 7.52% for the 15-year option and 7.60% for the 20-year option to the retail investors investing less than or equal to Rs. 10 lakh.

As always, these rates would be lower by 25 basis points (or 0.25%) for the non-retail investors.

Rating of the Issue – CRISIL, ICRA and CARE have assigned ‘AAA’ rating to the issue considering PFC to be a government company with reasonably good fundamentals. Also, these bonds are ‘Secured’ in nature and in case of any default, the bondholders would carry a right to make claim on certain assets of the company.

NRI Investment Allowed – Non-Resident Indians (NRIs) are also eligible to invest in this issue, on a repatriation basis as well as non-repatriation basis.

QFI Investment – Qualified Foreign Investors (QFIs) are not allowed to invest in this issue.

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) – 10% of the issue is reserved i.e. Rs. 70 crore

Category II – Non-Institutional Investors (NIIs) – 25% of the issue is reserved i.e. Rs. 175 crore

Category III – High Net Worth Individuals including HUFs & NRIs – 25% of the issue is reserved i.e. Rs. 175 crore

Category IV – Resident Indian Individuals including HUFs & NRIs – 40% of the issue is reserved i.e. Rs. 280 crore

Allotment on First Come First Served 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.

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

Demat/Physical Option – Unlike NTPC, it is not mandatory to have a demat account to apply for these bonds. You can subscribe to them in physical/certificate form as well. Interest payment will still get credited to your bank account through ECS.

Moreover, even if you get these bonds allotted in an electronic form, 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 – Many investors get these bonds confused with the tax-saving infrastructure bonds, which used to provide tax benefits, but carried a lock-in period of five years. So, here is the clarification – These tax-free bonds are freely tradable and do not carry any lock-in period. The investors may sell them at the market price whenever they want after these bonds get listed on the BSE.

Interest on Application Money & Refund – Successful allottees will earn interest at the applicable coupon rates 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 – PFC will make its first interest payment exactly one year after the deemed date of allotment and the deemed date of allotment will be announced just before the listing date. I will update this post as and when it gets announced.

Should you invest in this issue?

This is what I mentioned during the NTPC bonds issue last week – “Personally, I feel there is a good scope of 50 basis points (0.50%) rate cut by the RBI in the next 6-9 months and as a result, the 10-year G-Sec yield should fall below 7% by April-June next year”. What I expected from Dr. Rajan to do in the next 6-9 months, he has done it within 6-9 days itself. Dr. Rajan has taken the decision to cut the Repo rate, now it is your time to take a decision, whether to invest in this issue with falling G-Sec yield or wait for some kind of panic to have a spiked G-Sec yield again.

One thing would be there for sure, with this Repo rate cut of 50 basis points and PFC providing investors the option to get bonds allotted in physical/certificate form, there would be a similar or even greater demand for PFC tax-free bonds than it was there for the NTPC bonds.

I think the investors are left with no choice, but to invest in this issue and again if it gets oversubscribed, which I think it will, to invest the refund amount in other upcoming issues. This way they can diversify their investments and get to invest in bonds with a relatively higher coupon rates.

Application Form for PFC 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 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]

Volatile stock markets are again testing the nerves of Indian investors. People, who invested in stocks or equity mutual funds in the hope of some quick fixing by the Modi government, have been left disappointed with the kind of returns they have earned in the last one year or so. Some investors are headed towards safe fixed deposits where interest rates are continuously falling, while others are looking to invest in debt funds.

But, the recent problem with JP Morgan debt funds, in which the fund house restricted redemptions in two of its debt schemes – Short Term Income Fund and India Treasury Fund, has once again shaken the investors’ confidence in debt funds as well.

So, what do investors do in the current economic scenario? Stay in cash? Or invest in gilt funds and tax-free bonds only?

It is said that the best time to invest is when there is a panic. But, the problem is that it is very difficult to figure out whether the panic is based on some kind of reality or it is just a perception and a short-term phenomenon.

After a gap of one financial year, tax-free bonds are making a comeback this financial year and NTPC is the first public sector enterprise (PSE) to launch the public issue of such bonds from the coming Wednesday, September 23rd. As the company is confident of raising the desired amount very quickly, the issue will remain open for just seven working days to get closed on September 30th i.e. the next Wednesday.

Size of the Issue – NTPC has been authorized to raise Rs. 1,000 crore from tax free bonds this financial year and it has already raised Rs. 300 crore by issuing these bonds in private placement. The company will raise the remaining Rs. 700 crore from this issue.

The issue size of Rs. 700 crore is very small for a large population of investors waiting for these bonds for around 18 months now and for this reason, I think the issue should get oversubscribed on the first day itself.

Rating of the Issue – NTPC is India’s largest power generator and a ‘Maharatna’ company with market capitalization of Rs. 104,759 crore. Being a PSU with strong fundamentals and government backing, CRISIL, ICRA and CARE have assigned ‘AAA’ rating to the issue.

Moreover, these bonds are ‘Secured’ in nature and certain fixed assets of the company will be charged equivalent to the outstanding amount of the bonds.

Coupon Rates on Offer – NTPC is offering yearly rate of interest of 7.36% for its 10-year option, 7.53% for the 15-year option and 7.62% for the 20-year option to the retail investors investing less than or equal to Rs. 10 lakh.

As mandated by the government, these rates would be lower by 25 basis points (or 0.25%) for the non-retail investors.

NRI Investment Allowed on Non-Repatriation Basis – Non-Resident Indians (NRIs) are also eligible to invest in this issue, but only on a non-repatriation basis. NRI investors will not be allowed to repatriate its interest amount or maturity proceeds outside India.

QFI Investment – Qualified Foreign Investors (QFIs) are not allowed to invest in this issue.

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) – 10% of the issue is reserved i.e. Rs. 70 crore

Category II – Non-Institutional Investors (NIIs) – 25% of the issue is reserved i.e. Rs. 175 crore

Category III – High Net Worth Individuals including HUFs & NRIs – 25% of the issue is reserved i.e. Rs. 175 crore

Category IV – Resident Indian Individuals including HUFs & NRIs – 40% of the issue is reserved i.e. Rs. 280 crore

Allotment on First Come First Served 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.

Listing & Allotment – NTPC has decided to get these bonds listed on both the stock exchanges i.e. National Stock Exchange (NSE) as well as the Bombay Stock Exchange (BSE) and has successfully got the necessary in-principle listing approval also from these exchanges. The bonds will get allotted and listed within 12 working days from the closing date of the issue.

Demat Account Mandatory – This is one of the noticeable changes as compared to the last time. NTPC has decided to allot these bonds only in dematerialised form and thus, the investors do not have the option to apply these bonds in physical or certificate form.

So, if you want to apply for these bonds in this issue and do not have a demat account, act now as you have only two days with you to get a demat account opened. However, once allotted in demat form, the investors can rematerialise the bonds in physical/certificate form if they decide to close their demat account in future.

No Lock-In Period – These tax-free bonds are freely tradable and do not carry any lock-in period. The investors may sell them at the market price whenever they want after these bonds get listed on the BSE or NSE.

Interest on Application Money & Refund – Successful allottees will earn interest at the applicable coupon rates 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 – NTPC will make its first interest payment exactly one year after the deemed date of allotment and the deemed date of allotment will be announced just before the listing date. I will update this post as and when it gets announced.

Fundamentally, NTPC is a good company, ranked nineteenth among the top Indian companies by market capitalization. Also, at present, there are only seven central public sector enterprises (CPSEs) which have been conferred the status of Maharatna and NTPC is one of them.

Among the seven companies which have been authorized to issue tax free bonds this financial year, NTPC is the only company which has the ‘Maharatna’ status.

Should you invest in this issue?

There are many reasons why I think yield on government securities (G-Secs) should fall here in India. China slowdown, no rate cut by the US Federal Reserve on September 17 and falling WPI & CPI inflation – I think all these factors would make the RBI governor Dr. Rajan to think about cutting policy rates in its monetary policy scheduled to be held on September 29th. But, less than normal rainfall and less than desired improvement in the Indian economy & fiscal deficit, are a couple of reasons which might not work in favour of a rate cut.

Moreover, Congress playing spoilsport in the passage of important bills like GST and the land acquisition bill are also putting pressure on the Indian economy and thus making it extremely difficult for the Modi government to take further actions on the reforms front. RBI is keeping a close eye on the steps taken by the government to strengthen the economy and revive the investment sentiment.

If all goes well and the government is able to implement GST from April 1 and the land acquisition bill after the Bihar elections, I think India would replace China to become the most attractive investment destination for the global institutional investors.

Personally, I feel there is a good scope of 50 basis points (0.50%) rate cut by the RBI in the next 6-9 months and as a result, the 10-year G-Sec yield should fall below 7% by April-June next year. If that materialises, then there would be at least 8-10% appreciation in the market price of these bonds by the end of current financial year.

Application Form of NTPC 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 NTPC 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]

Last quarter of FY 2015 was a nightmarish quarter for Bajaj Auto. It faced all kind of problems related to its product sales in India as well as exports outside India to countries like Nigeria, Egypt and Sri Lanka. The Company witnessed a double-digit decline in motorcycle sales in all three months of Q4, 12.24% decline in January, 20.94% in February and 22.41% in March.

While domestic motorcycle sales were down due to rural slowdown and in anticipation of new launches, commercial vehicle sales were down due to a subdued economic growth. Exports were badly hit due to an extremely violent situation in Nigeria due to elections, an order cancellation by the new Sri Lankan government and inadequate availability of dollars with Egypt & Nigeria due to a sharp fall in oil prices.

Subsequent to this extremely poor quarter, several brokerages downgraded the stock to ‘Sell’ or ‘Reduce’ or ‘Hold’ at the best. Research analysts were expecting another bad month for its sales in April and its stock price hit a 52-week low of Rs. 1912.50 on the NSE on April 30.

But, when everyone was questioning its product & sales strategy, Bajaj Auto management worked harder to improve the sales volume by reintroducing its phased out model CT100 and repackaging its popular brand Platina. This strategy worked wonderfully well for Bajaj Auto as the company started posting decent sales numbers March onwards. Since then its stock price recovered to move beyond Rs. 2600 before it became ex-dividend on July 9, a gain of around 35% in less than 50 trading days.

I think such returns are great from a large cap company like Bajaj Auto and if all goes well, there is a room for further upside in its stock price from hereon. Here I try to list some reasons which have helped and should continue to do so in moving its stock price up this month.

1. Higher June Sales Numbers – After a negative growth for eight months in a row, the company registered a growth of 9.68% in its motorcycle sales in June. Though it was still below some analysts’ expectations, the numbers looked decent given a series of poor sales numbers by the company in the first three month of the current calendar year.

2. Higher Expected July Sales Numbers – The Company expects its sales momentum to continue in July as well with exports & domestic sales number to be higher than June.

3. Dividend of Rs. 50 – Though I personally never buy a stock to get its dividend, I have observed many investors do so, not only individual investors, but even institutional investors. The Company announced a dividend of Rs. 50 in May and its stock price went ex-dividend on 9th of July. The dividend will get credited into shareholders’ accounts on July 27th or 28th after the company’s AGM on July 23rd.

4. Supreme Court Verdict on Quadricycle RE 60 – Legal tussles take very long to get resolved here in India. Such a matter involving Bajaj’s unique product, Quadricycle – RE 60, is pending with the Supreme Court and is now posted again for hearing before the court today i.e. July 15. Bajaj has high expectations that the court will clear its hurdles today and the product would soon hit the Indian roads giving the commuters a long overdue alternate to auto rickshaws. A favourable verdict would provide a very big boost to Bajaj Auto’s stock price in the short term and its financials in the long term.

5. Rupee Fall & Highest Ever Quarterly Profit on July 23 – On the back of a recovery in its exports & domestic sales in the April-June quarter, Bajaj Auto is expected to announce its highest ever quarterly profit in excess of Rs. 1,000 crore on July 23. To give further strength to its already strong sales, US dollar appreciated considerably against the Rupee in the last quarter. Bajaj expects a higher realisation and forex gain due to such a weakness in INR.

6. Bonus Expectations – Bajaj Auto last announced a bonus of 1:1 on July 22, 2010. With a strong quarterly show and brighter times ahead, some analysts are speculating that the Bajaj management might announce a surprise bonus issue on July 23rd as well, after a gap of 5 years. This move will provide more liquidity to the stock and the investors would definitely consider it to be a strong signal about management’s confidence in the company’s future profitability & growth.

7. Repackaged Discover 150 – One factor, which has been hurting Bajaj’s motorcycles sales badly for quite a long period now, is the poor show by its Discover brand. The management of the company was very confident about its revival when they launched Discover 150 last year. But, it again failed to impress a large number of prospective buyers.

The management of Bajaj Auto recently announced that they have already taken some corrective measures regarding the product and they will soon launch a repackaged Discover 150, which they hope to do well this time around.

8. Initiating Pulsar Exports – In the past 6-8 months, Bajaj has launched many variants of its most popular & profitable brand Pulsar. All its variants are getting a very good response from the customers and there is a waiting period of 1-2 months for a couple of its variants. Bajaj would also initiate the exports of its Pulsar variants this month, which could again boost its monthly exports and hence its realisations & profitability.

Though stock prices move well ahead in anticipation of an event and probably Bajaj Auto’s stock price has also moved up well in advance in anticipation of a good quarter, I think the company is standing on a very strong footing now and the factors mentioned above should further aid its stock price touch all time highs in the coming weeks and months.

This post is written by Mr. Santanu Debnath, who runs a Multi-Niche Blog – MyDailyLifeTips.com.

Are you investing in Mutual funds regularly? Have you heard about International mutual funds?

If yes, then do you know why you should start investing today? If you are a regular follower of any personal finance blog or a stock market news channel, then you might have noticed everyday analysis of stock markets of various countries like Dow Jones of United States, Brazil Bovespa Stock Index, Canada S&P/TSX 60 etc. Now, one can invest on those markets as well with the help of International Mutual funds.

In this article I will share a basic overview of international mutual fund, why one should invest on such funds and what are the other facts one should know before investing in such funds.

What is International Mutual Fund

If you know the definition of Mutual fund, then the meaning of International fund is also very simple. In this fund the accumulated money will be in stock markets of other countries like USA, Brazil etc.

International mutual funds are the portfolio of equities, bonds, and money market securities traded in foreign market. Because of the diversification they offer, these funds are gaining more and more popularity.

 

Why one should invest in International Mutual Fund

India is a developing nation which is currently attracting many foreign investors. There are many such countries in the world, where one can invest via overseas funds and get a good exposure.

There are many benefits associated with them; like introduction to emerging markets, commodities boom, or business cycle of different markets.

If you understand the meaning of portfolio diversification, then these funds will add huge value to your portfolio. Whenever your domestic market is down, other markets may perform better and in this way your net asset will stay positive in the long run.

According to last one year’s data, the top 10 international mutual funds has shown huge returns ranging from 26% to 50%.

Investment Benefits

There are various benefits of investment in international mutual fund. If chosen wisely, your return from these are much higher compared to domestic markets.

Better Returns than other MFs: An international mutual fund provides much better returns than any other type of MFs. To avail better returns, you can have few foreign funds from different international markets.

Growth of your Principal Amount: Foreign fund investment can expand or grow your initial capital to a great extent. In case of international MF, you can choose between funds of various overseas markets. So chances are more that your amount will grow significantly.

Better Investment Portfolio: Foreign funds are mainly ideal for those investors who want a diversified investment portfolio. To get optimal returns from investment in foreign mutual funds, Investment in those funds should not have much link with the domestic market.

Risk of Investment

Besides general mutual fund knowledge, one must know few more facts before investing in these Mutual Funds.

Although by investing in Mutual funds, one actually minimizes the tension of tracking individual company’s track record; still people can’t track those companies which are based outside India. In case of International mutual fund, you may find it difficult to get information how the companies linked with those funds are performing, are there any regulatory or change in business plan happening etc. So the upcoming markets can be affected with the economical and political changes of those countries.

I believe, almost everyone invest in mutual funds after analyzing the track records of that fund. As international mutual funds are new in Indian market, you may not find enough historical data for few of them.

In stock market, any crucial news related to a company play a huge role. You might have noticed that before declaration of national election result or any company’s new policies or budget; market reacts either in a positive or negative way. As the time zone of international market is completely different from ours, there will be a risk of missing such timely updates.

Fluctuations in the currency rate of different countries can affect your investment very significantly, as it is very difficult to know the financial stability of any country. This thing completely depends up on how the local currency is trading with the international currency. E.g. if you invest in any USA based fund and you have received a return now then definitely it is better compared to what you would have received 2 years back.

Anyway, these points may not be applicable for an investor who invests for a long term point of view, rather tracking the fund performance on a regular basis.

Income tax rules on International Mutual funds

The tax liabilities will be similar to debt mutual funds only. Means a long term capital gain tax will be applicable as per below rules:

• Without Indexation – 10% tax on capital gains
• With Indexation – 20% tax on capital gains

Examples of International Mutual Funds

So what are the foreign funds available now? Below are examples of few mutual funds that are available currently in the international market.

• ICICI Prudential US Bluechip Equity Fund
• DSP BlackRock US Flexible Equity Fund
• Mirae Asset India-China Consumption Fund
• DWS Global Thematic Offshore Fund Growth
• JPMorgan JF Asean Equity Off-shore

Conclusion

To conclude the article, I will say that international mutual fund will open new investment options in mutual fund segment which will provide more diversification as well as a better return. To make wise investment decision, one should do a detailed research about the international market that they consider to include in their investment portfolio.

International mutual funds are a useful way of reducing the overall risk of one’s portfolio and we can hope that these will be seriously considered by all the investors in coming days. But one should try to follow the thumb rule of 70:30 or 75:25 for domestic & international market from the mutual fund portion of their investment portfolio.

Hope you find this article useful. Share your thoughts and query related to this topic.