Hold IIFCL tax free bonds till maturity: ICICIdirect.com

ICICIdirect.com has come out with its report on India Infrastructure Finance Company (IIFCL) Tax Free Bond. According to the research firm, IIFCL is raising money through tax free bonds for the first time. The company also provides option for 20 years, which was not available in previous issues. The bond is ideal for holding till its maturity says ICICIdirect.com.

India Infrastructure Finance Company Ltd (IIFCL) has come out with a tax free bond issue after its peers Rural Electrification Corporation (REC) and Power Finance Corporation (PFC). The IIFCL tax free bond comes with an annualised coupon of 7.69%, 7.86% and 7.90% to retail investors for tenure of 10 years, 15 years and 20 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 11.12%, 11.37% and 11.43% for 10 years, 15 years and 20 years, respectively, higher than 8.5-9% on bank fixed deposit and other stable fixed income instruments. IIFCL is a wholly owned government company and the NCDs issued are secured in nature, having priority over unsecured lenders. The issue is rated AAA by CARE, Icra and Brickwork. Hence, the IIFCL tax free bond appears attractive vis-à-vis other fixed income instruments currently available for long term fixed income investments especially for highest tax bracket investors.

Issue details
The Central Government in exercise of the powers conferred by Section 10(15)(iv)(h) of the Income Tax Act, 1961 authorises IIFCL to issue during FY12-13, tax free, secured, redeemable, non-convertible bonds up to Rs 9215 crore. Unlike REC and PFC, this will be IIFCL’s first issue of tax-free bonds as the company did not have any such issue last year. IIFCL is raising money through tax free bonds for the first time. The company also provides option for 20 years, which was not available in previous issues.

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