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Feb 25, 2013, 12.15 PM IST | Source: Moneycontrol.com

Finance railways; earn tax free income

Indian Railway Finance Corporation Ltd (IRFCL) has come out with its tranche II bond issue with a coupon rate of 7.38% and 7.54% for 10 years and 15 years, respectively, for a retail investor.

Indian Railway Finance Corporation Ltd (IRFCL) has come out with its tranche II bond issue. The issue carries a coupon of 7.38% and 7.54% for 10 years and 15 years, respectively. Interest received on the bond is fully exempt from income tax. The pre-tax yield on the bond for the highest tax bracket investors, therefore, works out to 10.68% and 10.91% for 10 years and 15 years, respectively, higher than 8.5-9% on bank fixed deposit and other stable fixed income instruments. CARE and Icra have assigned AAA rating for the bond issue, which is the highest credit rating. IRFCL is a wholly-owned government company, which finances the railways. The company’s performance has been rated excellent for 11 years in a row by the Department of Public Enterprises. The bonds issued by the company will be secured by creating a first pari passu charge on the movable assets of the company. The bonds, therefore, are a safe avenue to earn tax free income.

Analysis

IIFCL’s tax free bond comes with a coupon rate of 7.38% and 7.54% for 10 years and 15 years, respectively, for a retail investor. Interest received on the bond is fully exempt from income tax. The pre-tax yield on the bond for the highest tax bracket investors, therefore, works out to 10.68% and 10.91% for 10 years and 15 years, respectively, higher than 8.5-9% on bank fixed deposit and other stable fixed income instruments.

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