The state-owned Indian Infrastructure Finance Company Limited (IIFCL), is offering an unique feature for investors in its current infrastructure bond offering that allows an applicant to choose apply for five bonds of the same series or five Bonds across different series. The bonds, with a fixed rate of interest, is being issued with a face value of Rs 1,000 each and interest on the bonds shall be payable on annual or cumulative basis depending on the series selected by the Applicants. The IIFCL company is government owned and hence the investments in IIFCL bonds is backed by the government, so investors can safely park their money in these bonds.
The IIFCL bonds are being launched in multiple series: first and second series will be for 10 years long bonds and promises a return of 8.15% interest rate per annum; third and fourth series will be for 15 year long bonds and gives a 8.3% return. However, for all the investment series, there will be a lock-in period, as the bonds will give tax benefit.
The offering, currently open for subscription, is considered to be the first Bond Issue by a Government of India enterprise with tax benefits under Sec 80CCF of the Income Tax Act, 1961. It closes on March 4, 2011. IIFCL is offering the scheme with an aim to collect around Rs 1,200 crore with a long term investments points of view and offering tax savings.
Bonds with Credit rating of: “AAA/Stable” from CRISIL and “CARE AAA” from CARE, offered in four series, both with buyback option and without buyback option with different interest payment options. They are proposed to be listed on BSE. The bonds are tradable, post lock-in period of five years. The profile on the each series of bonds under the first tranche is as under: 10 years annual interest payment (interest rate of 8.15%) and cumulative (interest rate of 8.15%) and 15-years annual interest payment (interest rate of 8.3%) and cumulative (interest rate of 8.3%). The buyback is 5 years in the case of the 10-year Bonds and 7 years in the case of 15-years Bonds. The Face Value is Rs. 1000 per Bond.
With minimum subscription of five bonds and in multiples of one bond thereafter, the Bonds will be issued in physical and in dematerialized form at the option of investors. Though these bonds do not offer interest rates higher than those offered by banks on their fixed deposits (FDs), the post-tax return they give will be higher. For instance, if the 8.15 per cent offered by IIFCL would fetch an investor in the highest income tax (I-T) slab of 30.9 per cent, about 11.58 per cent return per annum – he/she would save Rs 6,180 I-T on an investment of Rs 20,000.
Investing in infrastructure bonds help you build the nation while saving on your tax through the special concessions they offer. There is no limit as to the amount that can be invested in the specified infrastructure bonds but tax saving is available only up to a limit. Section 80CCF of the Income Tax Act allows a maximum deduction of Rs. 20,000 in a financial year, in addition to the deduction of Rs. 100,000 under sections 80C for investments in long-term infrastructure bonds.