Is NTPC Tax Free Bond a good investment?

State-run power major NTPC's tax-free bond issue was oversubscribed 3.3 times on the first day itself. The issue received an overwhelming response by garnering Rs 3,310 crore as against issue size of Rs 1,000 crore.

The tax-free bond issue which opened on Monday was earlier scheduled to close on December 16 but will formally close Wednesday, a company official told PTI. The base issue size aggregates to Rs 1,000 crore with an option to retain over-subscription up to Rs 750 crore for issuance of additional bonds, aggregating up to Rs 1,750 crore. The funds raised through the issue would be utilised towards funding of capital expenditure and refinancing for meeting the debt requirement in ongoing projects. Below is the verbatim transcript of Azeez's interview with CNBC-TV18. NTPC's tax-free bond issue oversubscribed 3.3 times Q: A fabulous response is seen to the NTPC Tax Free Bond. Your views on that and what is the return and is that a good return for retail investors? A: It is a good investment and a screaming buy for those clients, who have marginal tax above 20 percent and 20 percent because the pre tax and the post tax return differs significantly. If one has 8.5-9 percent post tax return, it is as good as getting return on pre tax basis, almost about 10.5 to about 12.5. Therefore, it is as good as NTPC giving a fixed deposit at 12.7 if one is at 30 percent marginal tax rate. Therefore, looking at the tax free interest; let us assume if an individual has invested enough money to get Rs 10,000 tax free interest. This could go up to Rs 15,000 with the same amount because of that 50 percent interest income can be increased; the interest income could increase by about 25 percent to 50 percent because of the tax efficiency which this brings in and there is a reasonable probability that there is a capital appreciation as well over the next one and a half- two years, a 4-5 percent of capital appreciation if someone chooses to sell it before maturity. Q: Would there be a market for it? A: Yes. If one looks at the earlier issues, there is enough liquidity for somebody to cash out early.