NHAI Dec 2015 Tax Free Bonds : Here's Who Should Subscribe?

Investment

oi-Sunil

By Sunil Fernandes

Published: Monday, December 14, 2015, 9:57 [IST]

The National Highways Authority of India (NHAI) is launching a Rs 10,000 crore tax free bond offer, which opens for subscription on Tuesday, Dec 15.

Unlike, the previous tax free bonds, this is a sizeable offer and a lot of retail investors can get subscriptions. The previous tax free bond offers in 2015 from IRFC, REC and Power Finance were relatively small, which is why many investors were a little disappointed. This is the largest tax free bond offering so far.

The assessment of the NHAI Dec 2015 tax free bonds is quite simple - if you are in the 20 and 30 per cent tax bracket, please subscribe. If you are in the 10 per cent tax bracket or else not in the taxable income bracket, just skip this issue.

When does subscribing to the NHAI Tax Free Bonds make sense?

Retail investors will get an interest rate of between 7.39-7.60 per cent per annum on the NHAI Tax Free bonds with 10-15 year maturities.

Now, let's assume you are in the 20 per cent tax bracket, you would get a post tax yield of 6.4 per cent on a bank fixed deposit, which fetches 8 per cent interest. And, if you are in the 30 per cent tax bracket, you would get a post tax yield of just 5.6 per cent.

So, the NHAI Dec 2015 Tax Free Bonds gives you an opportunity to get returns between 7.39-7.60 per cent, which is way higher than post tax yields of bank deposits.

Even, those in the 10 per cent, would get slightly higher yields, though, banks tend to compound interest every quarterly.

Listing of the NHAI Tax Free Bonds

These bonds provide adequate liquidity, if you want to sell the same. They are to be listed on the exchanges, for which you must have a demat account to sell. However, liquidity is not very high and hence at times, you may have a problem in selling large quantities.

Why subscribing to the NHAI Tax Free Bonds Make Sense?

If you are not paying any tax, please avoid the issue. But, if you are in any of the tax brackets, it makes sense. One of the most important reasons for that is the fact that interest rates in the economy are falling. By investing at the current rates, you are locking in money for 10-15 years at very high interest rates.

So, you would really not be worried, if interest rates fall in the near future, as you have place money at very high interest rates.

All in all, the NHAI Dec 2015 Tax Free Bonds offer a good opportunity to subscribe at the current interest rates, depending on the tax bracket you fall under.

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