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.....