Infrastructure Debt Funds: A two-way approach

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Infrastructure Debt Funds: A two-way approach
The Reserve Bank of India (RBI) on Monday issued guidelines on Infrastructure Debt Funds (IDFs), the funds which will solve the purpose of both government and a common man!

As per the government data, the infrastructure sector requires an investment of US$ 1 trillion during the 12th Five Year Plan beginning next fiscal year. IDFs will act as a long-term source for the government to enhance Indian Infrastructure Sector.

On the flip side, these bonds also qualify for tax deduction under section 80CCF, so an individual investor would be able to invest up to Rs 20,000 in these bonds. With this, an individual in the highest tax slab can save tax of Rs 6,180, which will be in addition to Rs 1 lac you can invest under 80C.

With the recent move by RBI, both banks and non-banking finance companies (NBFCs) will now be able to sponsor IDFs, which can be in form of a separate Mutual Funds or NBFCs.

The new guidelines say, NBFCs are as follows:

  • NBFCs' net owned funds should be minimum of Rs 300 crore with capital adequacy ratio (CAR) of 15%.
  • The funds sponsored by them should have been operational for at least five years.
  • Their non-performing assets (NPAs) should be less than 3% of net advances.
  • NBFCs should have been existence for atleast five years.
  • They should have earned profits for the last three years.

IDFs will be available for investment for both domestic and off-shore institutional investors, especially insurance and pension funds which carry long term resources.

IDFs issued as Mutual Fund would be regulated by the Securities Exchange Board of India (SEBI) and IDFs issued as NBFC will be regulated by the RBI.

As far as Infrastructure financing companies are concerned, they would be allowed to contribute up to 49% to the equity of the IDF-NBFC, with minimum equity holding of 30% of the equity of the IDF-NBFC, the RBI said.

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Read more about: tax, rbi, sebi, infrastructure
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