Tuesday, February 22, 2011

IIFCL Long Term Infrastructure Bonds - Analysis, Recommendation, Review

Overview:
Its the time of tax saving products before the end of the financial year. After IDFC and L&T, it is the turn of IIFCL - India Infrastructure Finance Company, tp come up with its first series of infrastructure bonds. One can invest upto Rs 20,000 under infrastructure bonds to get tax benefits under section 80CCF. This is in addition to the 1 lakh limit available under Section 80C, 80CCC and Section 80CCD. The face value of each bond is 1,000 and you need to subscribe to a minimum of five bonds and in multiples of one bond thereafter. For details of tax benefit for infrastructure bonds, refer to the post here!

Interest Rate and Options:
One can opt for a 10-year bond or a 15-year bond. One can even subscribe using a combination of 10-year and 15-year bonds. For example, one can apply for 10 bonds of 10-year period and 10 bonds of the 15-year period. While the coupon rate for the 10-year bond is 8.15%, the coupon rate for the 15-year bond is pegged slightly higher at 8.3% per annum. One could choose to receive interest on an annual or a cumulative basis. Both of them have a buyback option. The 10-year bond has a buyback option at the end of five years, while the 15-year bond has a buyback at the end of seven years. In addition, after the initial lock-in of five years, the bonds will be listed on BSE.

Dates:
The issue closes on March 4, 2011.

Rating:
The bonds will be issued in both physical and Demat format, and the issue has been rated AAA by CRISIL and AAA by CARE, which indicates their highest safety rating.

Recommendation:
The maximum amount of income not chargeable to tax in case of individuals (other than women assesses and senior citizens) and HUFs is 160,000. In the case of women assesses, it is 190,000 and in case of senior citizens, it is 240,000 for financial year 2009-10 . Hence, those whose income exceeds these slabs could apply. Thus, by investing 20,000, a person who is in the highest tax bracket of 30.9% can save upto 6,180, while those in 20.6% tax bracket, can save 4,120, and those in the 10.3% tax bracket, can save 2,060. The interest rate is also better than the bonds sold by IDFC and L&T.


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