Should you invest in NHAI tax-free bonds?
Coupon rate: In comparison to the other tax-free bond issue of IRFC that opened this January, NHAI offers a higher coupon rate of 8.52% and 8.75% to retail investors for maturity term of 10 and 15 years respectively. In contrast, IRFC issue offers a coupon rate of 8.48% and 8.65% over the two terms.Other investor classes; including QIBs, corporates and HNIs shall be entitled to a lower coupon rate reduced by 25 basis points in contrast to that shall be realized by retail investor class. One basis point is one-hundredth of a per centage point.
When compared with still other issue of NHB, the return from NHAI issue is comparably lower. The NHB issue offers a coupon rate of 8.51%, 8.88% & 9.01% for bonds maturing in 10, 15 and 20 years respectively.
For individuals in the higher tax-bracket of 30%, the issue will offer a pre-tax yield @ 11.15% and 11.45% for 10 and 15 years term. So, with investment in NHAI tax-free bond, taxpayers in high income tax bracket shall realize substantial returns over a long term which other debt instruments, including bank fixed deposits shall not offer.
Interest payment: With payment of interest on an annual basis, NHAI tax-free bonds does not provide any regular income.
Tax benefit: The interest income from these bonds are tax free and hence do not form part of the total income in computing income tax.
Safety of the instrument: Being a government entity, the tax-free bonds of NHAI are secure for an investor to park their excess funds. The credit rating agencies have accorded the issue AA/Stable-CRISIL, AAA-CARE and BWR AAA (Outlook: Stable) by Brickworks Rating.
High liquidity: The issue to be listed on both the BSE and NSE is suggested to offer high liquidity in the secondary markets.