IDFC, L&T Infra drop interest rates for tranche2 —IFCI is good bet

Raj Pradhan 10 January 2012

IDFC and L&T Infra have dropped interest rates for tranche2 bonds to 8.7% as against 9% which they offered till December 2011. IFCI which offers 9.09% and 9.16% for 10 and 15 years consequently emerges as a good bet, but the subscription closes 16 January 2012

Those who missed IDFC or L&T Infrastructure Finance Company (L&T Infra) tranche1 last month will be disappointed to know that interest rates for tranche2 have marginally dropped from 9% to 8.7% for 10-year bonds; they open for subscription on 10th and 11th January, respectively. The good news is that IFCI bonds are still available in the market till 16 January 2012 and it offers 9.09% and 9.16% respectively for 10 and 15 years. These bonds can be invested for Rs20,000 towards tax savings under Section 80CCF, which is over and above the Rs1 lakh towards 80C.

Several such bonds come in market during the tax saving season. Bonds of REC, IFCI, PTC India Financial Services and SREI Infrastructure Finance are currently open in the market. IFCI bonds have rating of A+ by Care and LA by ICRA. IFCI and REC have high safety as they are owned by the government. L&T has AA+ rating from Care and ICRA. IDFC, which has a better rating, has AAA rating by ICRA and Fitch.

Even though these bonds appear in a demat account, there are restrictions for selling it in the secondary market within the lock-in period of five years. Issuer of the bonds may offer buyback facility after five years.

Tax savings bonds have struggled this year with IDFC mopping only Rs538 crore with an approval for Rs5,000 crores; L&T Infra got Rs530 crore with an approval for Rs1,100 crore. It may be due to competition from tax-free bonds recently issued by NHAI and PFC; these do not qualify for upfront tax savings, but the interest generated is tax-free as against the 80CCF infrastructure bonds whose interest is taxable.

NHAI and PFC tax-free bonds were offered for 8.2%-8.3% per annum (p.a.) interest for 10 and 15-year bonds respectively. These will more than double your money in 10 years and the icing on the cake is tax-free interest. High net individuals (HNI) and institutional investors quota was over-subscribed as the genuine need for generated interest to be tax-free. PFC tax-free bond is open till 16th January.

Comments

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krishan taneja

1 decade ago

Mr Raj Pradhan in his article has stated that QUOTE IFCI and REC have high safety as they are owned by the government UNQUOTE My observation is about IFCI. The writer of this article doesn't even know that IFCI itself has all along been saying that it is not REPEAT not owned by Government. It is on record of having stated this in many Courts, including High Courts and Supreme Court as well as Parliamentary Panels. If it were a Govt organisation, then it would have been under RTI. IFCI has lost the case in the Court of Justice Muralidharan of Delhi High Court, who also imposed on IFCI a penalty of Rs.10,000. Now, IFCI has preferred to file an appeal before a Double Member Bench of Delhi High Court itself, saying that it does come under the purview of RTI as it is not a government company. The court date is in January 2012 itself. If you don't believe this, ask IFCI itself.
Regards.

raj

Replied to krishan taneja comment 1 decade ago

Thanks for the correction.

The government established The Industrial Finance Corporation of India (IFCI) on July 1, 1948, as the first Development Financial Institution in the country to cater to the long-term finance needs of the industrial sector.

The government has plans to bring IFCI Ltd back under its direct control by converting its loans into equity, but it has not happened so far.

I have specified the ratings of IFCI, L&T infra and IDFC in the article. While IFCI rating is lower than IDFC and L&T Infra; its rating of A+ by Care and LA by ICRA is decent.

The interest rate is higher than offered by others. If someone feels it is worth taking little risk for Rs20,000 investment in IFCI, go ahead. If want more safety, IDFC is better choice. There is no 100% safety in any investment.