NHAI-Tax Free Bond Issue

From Ravil

National Highways authority of India is coming out with a tax-free bond issue.  Good instrument to invest in…

 

Issuer National Highways Authority of India
Nature of instrument Tax-Free Secured Redeemable Non-Convertible Bonds in the nature of Debentures
Issue Opening Date & Closing date December 28, 2011 & January 11, 2012
Instrument Form At the option of investors, in dematerialized as well as in physical form
Credit Rating CRISIL AAA/Stable” by CRISIL, “CARE AAA” by CARE and “Fitch AAA(ind)” by FITCH
Minimum Application 50 Bonds (Rs. 50,000/-) and in multiples of 1 Bonds (Rs. 1,000/-) thereafter

 

Yield:

Tranche Series-I Series-II
Tenor 10 Years 15 Years
Coupon Rate 8.20% p.a. 8.30% p.a.
Interest Payment Dates Every year on October 01, and on respective maturity
Listing Proposed on BSE Ltd. (“BSE”) and National Stock Exchange of India Ltd. (“NSE”)
Trustee SBICAP Trustee Company Ltd.

 

Please note that a 8% tax free coupon is very comparable to an investment product that delivers 12% pre-tax returns & is better than fixed deposits giving about 9%  pre tax returns.

 

Taxation:

 

The income by way of interest on these Bonds shall not form part of total income. There shall be no deduction of tax at source from the interest, which accrues to the bondholders in these bonds. A listed Bond is treated as a long term capital asset if the same is held for more than 12 months. If Capital gains arise on the sale of the bonds the same will be taxed at 10% without indexation. Wealth Tax will not levied on investment in Bond.

 

Interest rate sensitivity & price appreciation on premature encashment of bond explained below –

 

Assumed Reduction in Yield after 2 years

0.75%

1.00%

1.25%

1.50%

1.75%

2.00%

Price

104.4

105.9

107.5

109.1

110.7

112.3

Absolute Gain

4.4

5.9

7.5

9.1

10.7

12.3

Annual Gain

2.19

2.95

3.73

4.52

5.32

6.14

Post-tax Capital Gain (B)

1.98

2.66

3.36

4.07

4.79

5.53

Total Yield (A+B)

10.18

10.86

11.56

12.27

12.99

13.73

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One Response

  1. Yeah at this hour and time things could be a great option who come in the 30% Tax Bracket.

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