L&T Infra Bonds

October 18, 2010

After, IFCI & IDFC, it is now the turn of L&T Infrastructure Finance Company Limited (L&T Infra) to come out with tax saving infrastructure bonds for the retail investor that also allows deduction u/s 80CCF of the Income Tax Act 1961 to Individuals & HUFs who invest in these bonds.

The maximum amount of deduction available is Rs. 20,000 per income tax assesses and it is over & above Rs. 1 lac deduction allowed u/s 80C.

So it makes sense for any investor in the 30% tax bracket to invest in these bonds and get instant tax savings of Rs. 6,000+ by investing in these bonds.

The bonds will have a maturity of 10 years. As an exit option to the investors, the company will offer buyback facility at the end of 5th and 7th years from the date of allotment. The bonds are proposed to be listed on NSE and can be traded after the initial 5-year lock-in period. There would be four series of the bond. Each bond will have a face value of Rs 1,000 and would be issued at par. The issue opens on October 15 and closes on November 2.

YM Deosthalee, director, L&T Infra said: “There are similarities between our bond and the one which was recently issued by IDFC in terms of coupon rates for five-year paper. We are both offering a coupon rate of 7.5% for that period. However, unlike IDFC, we are offering coupon rates for seven years and beyond.”

Also, unlike IDFC, whose bond can be purchased only by opening a demat account, L&T Infra has got approval from the competent authority to make investors able to purchase its bond even without having demat account. It is basically for those retail investors that live in far-flung areas of the country and hence are unable to open demat account, he said.

Documents required:

PAN card is compulsory but demat is not compulsory.

Who can Invest?

Individuals & HUF can invest in these bonds.

Offer period

Oct 15, 2010 to Nov 2, 2010.

AUM View

SUBSCRIBE to these bonds if you are in the 30% tax bracket and if you missed the IDFC bonds.

Latest Updates: IDFC Infra Bonds

The last date for applying for IDFC Infrastructure bonds has been extended to Oct 22, 2010 from Oct 18, 2010.


More importantly, on popular demand, the DEMAT a/c requirement for applying for IDFC Infra Bonds has been done away with and rightly so. What was the point in keeping demat compulsory for bonds that have a min. 5 yrs lock-in and that cannot be traded. Also, on one hand you are allowing HUFs to invest in these bonds and on other you make demat compulsory. Did not make sense. So great and thanks to IDFC that it listened to investors & logic prevailed.


Remember, we had raised this issue on our BLOG last week..(http://niravpanchmatia.blogspot.com/2010/10/idfc-infrastructure-bonds-open-for.html )

IDFC Infrastructure Bonds open for a limited period: INVEST

IDFC Infrastructure Bonds open for a limited period: INVEST if you are in the upper tax bracket

Sep 30, 2010
In the last budget, FM Pranab Mukherjee had allowed Investors to invest additional Rs. 20,000 over & above Rs. 1 lac that one is usually allowed u/s 80C to claim deductions. Hence, this (FY 2010-11) is the only financial year in which one can invest Rs. 1.20 lacs per Income Tax file & avail additional deduction.
The extra deduction of up to 20,000 is allowed u/s 80CCF if one invests in govt. specified Infrastructure Bonds to be issued by Infrastructure NBFCs like IFCI, IDFC, etc. Further, these bonds shall remain open for a specified  time period only. IFCI had last month come out with its Infra bonds & the issue is closed now. 

IDFC Infrastructure Bonds issue opens tom on 30th September 2010 & shall remain open for subscription till Oct 18th 2010 only.
 
The bonds have a tenure of 10 years & expected yield of 7.5 % pa or 8.0% pa depending on the option chosen. 

Who can Invest? Individuals & HUF only;    

What you need to Invest? PAN no. & a Demat Account 

(although we believe that making demat compulsory is an unnecessary requirement as one may want to Invest for all members in the family but they might not have a demat account; opening a demat for the sole purpose of investing in these bonds is not advised as it adds to the cost. Also, HUFs rarely have a demat account)


There are four option to choose from:

Bond Type	Interest Rate	Tenure	Buyback Option
Bond Series 1	8.0 % pa annual interest	10 years	No
Bond Series 2	8.0 % pa cumulative interest; compounded annually	10 years	No
Bond Series 3	7.5 % pa annual interest	10 years	Yes; after 5 years
Bond Series 4	7.5% pa cumulative interest; compounded annually	10 years	Yes; after 5 years

Analysis & Comments
Any investor who is in the 30% tax bracket, should subscribe to these bonds as it will result in total tax savings of approx. Rs. 36,000 this financial year (30% of Rs. 1.20 lac; surcharge & cess excluded).
The yield under various options are explained in the table below:

Tax Bracket		Tax Adjusted Yield to Investors
Your Tax bracket	Effective Tax Rates (%)	Series 1 (%)	Series 2 (%)	Series 3 (%)**	Series 4 (%)**
30%	30.9%	13.89 %	12.06%	17.19%	15.74%
20%	20.6%	11.57%	10.52%	13.41%	12.57%
10%	10.3%	9.64%	9.18%	10.23%	9.86%

**yield calculated assuming buyback at the end of 5 years

So if you are in the highest tax bracket and have already exhausted the limit of Rs. 100,000 u/s 80C, then it makes sense to invest the maximum amount of Rs. 20,000 in these bonds. We would suggest option 3 so as to net a yield of 17.19% in 5 years. Go for the buyback option that has a lock-in for 5 years only.
 
SUBSCRIBE.....