PFC's infrastructure bonds offer the highest interest rate

We are just one month away from the end of the current tax year, and it’s not only the salary earners who rush to scout for tax-saving options. Issuers of infrastructure bonds, a new tax saving instrument, too are lining up to be part of your tax-saving investments. The bond issues are under Section 80CCF of the Income Tax Act, wherein an investor can avail a deduction of up to Rs20,000 in the taxable income for the current financial year.

Five companies namely L&T Infrastructure Finance, India Infrastructure Finance Company (IIFCL), Industrial Financial Corporation of India (IFCI), Infrastructure Development Finance Company (IDFC) and Power Finance Corporation (PFC) have floated such bonds in this fiscal.

“We expect to collectively rake in about Rs15,000 crore through this bond issue by targeting about 3.1 crore income tax payers in our country,” said Balesh S J, senior director-Resources at IDFC.

Till date, IDFC, L&T and IFCI together have managed to collect only Rs1,800 crore. “Combining all companies together, we expect to collect Rs5,000 crore in the month of March alone.” Balesh added.

So far, PFC is the only company offering the highest rate of interest paid annually as well as on cumulative basis (see Table). Usually the tenure of the bonds is 10/15 years, but the lock-in period can be different. So after the lock-in period, one can trade those bonds on BSE and NSE. Companies also offer to buyback the bonds from investors at a specified price.

Investors should go in for the buyback options offered if possible, as that would give them the ability to exit if better interest rates are available. This is because the yields are based on the global securities.

If you do not need the regular inflows, do go in for the cumulative option as your overall return would be better. If you want to pick the right bond, all you need to is check the kind of interest it is offering, depending on the credit rating it has earned from a rating institution.

“PFC is giving the highest yield so far and hence salaried people and HNIs who are looking for tax-saving options, should definitely take opportunity of these new investment avenue,” said Raunak Roongta, a Mumbai-based independent financial planner.

IDFC on Thursday announced the public issue of its third tranche of secured, redeemable, long-term infrastructure bonds having tax benefits under Section 80CCF of the income tax act 1961.

These bonds with a tenure of 10 years, have a lock-in period of 5 years and after which they can be tradable on BSE and NSE. Series I carries 8.25% coupon where interest is payable annually, against Series II, which has a cumulative option. The issue opens for subscription February 28 and closes on March 16.

In the last 6 months this is IDFC’s third and last tranche of infra bonds.

“We didn’t collect enough in our first tranche because, we learnt that the high net worth clients were not much interested in such bonds. Hence, we realised and started focusing more on the salaried class for whom investing in these bonds made more sense. We hope to cross the amount we collected in our second tranche, said Sunil Kakkar, CFO of IDFC.