Sunday, September 25, 2011

IFCI Long Term Infrastructure Bond - Analysis, Review, Recommendation

Citizens have an option of investing upto Rs. 20,000 in long term infrastructue bonds and get tax benefit on that amount under Section 80CCF.  This was made additional to the Rs 1 Lakh under Section 80C a year back.
IFCI is the first company to come out with a long term infrastructure bond issue this year.

The issue opens on 21 September and closes on 14 November, 2011. The tenure ranges from 10 to 15 years and interest rate ranges from 8.5% to 8.75%.

There are 4 options with this series:
Option 1:  Tenure is 10 years. Interest Rate at 8.5% and interest will be paid at maturity.
Option 2: Tenure is 10 years. Interest Rate at 8.5% and interest will be paid annually.
Option 3: Tenure is 15 years. Interest Rate at 8.75% and interest will be paid at maturity.
Option 4: Tenure is 15 years. Interest Rate at 8.75% and interest will be paid annually.

Recommendation:
We think it is too early to invest in long term infrastructure bond for 2011. IFCI itself came out with multiple tranches last year and there will be more companies that will be coming out with these bonds. Interest rate may just go few basis points higher in the coming months for these bonds. The closing date for this issue is 14 November which is two months away so suggest wait till the last few days anyways.


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