The Tax Free Bonds issued by the Rural Electrical Corporation (REC) has fallen below the face value of Rs 1000 per bond. The 10 year tax free bond which got listed on the BSE on Wednesday was last traded at Rs 990, while the 15 year bond was traded at Rs 974.
Since these bonds are traded at a steep discount, the overall yields are likely to be attractive. The bonds offer a coupon rate of 7.93% and 8.12% for the 10 year and 15 year options respectively. These are tax free bonds, which means the income derived from these bonds would not form part of the total income in determining the final tax liability.
Considering that these bonds have now slipped below face value, the yields will come much higher than those offered in the initial coupon rates. Also, interest rates are likely to fall and hence purchasing at this point in time would ensure that amounts are locked up at higher interest rates.
REC is a navrathna public sector undertaking and being government owned there is greater security of the bonds.
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