The tax-free bond issue of NHAI that opened during the subscription time for IRFC with a higher coupon rate offering is being attributed for the lower subscription to IRFC. Though, the coupon rate offered by the two issues differ only marginally, the impact in the long term can be considerable. For retail investor class, IRFC tax-free bond offers a coupon rate of 8.47% and 8.67% respectively for bonds maturing in 10 and 15 years while the NHAI issue provides 8.52% and 8.75% respectively for tax-free bonds maturing in the same tenures. Other investor classes, including institutionsl investors, HNIs shall realise a coupon rate lowered by 25 basis points.
Meanwhile the other tax-free bond issue of NHAI sometime later managed to achieve full subscription mainly on account of the higher returns.
Such tax-free bond offerings are attractive as any future tax-free bond issue are likely to bear such higher coupon rates. However, investors should bet on such debt instruments considering their invstment objectives, liquidity concerns as well as other tax related concerns. Only funds that are not required some time soon should be deployed towards tax-free bonds as these feature a higher maturity term of 10, 15 and 20 years. Though, subscribers might wish to liquidate their investments in such financial instruments by traded them at the bourses, it must be remembered that though these debt instruments are listed on the exchanges the trade volume is highly low.
So, other than tax-free higher returns, investors ought to look at other integral factors both concerning the issue and their own investment objectives before locking in funds in the investment instrument.