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NHAI Bonds Listing

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THE tax free bonds of the National Highway Authority of India made their debut on the stock market with a bang on Wednesday. At the end of its listing day on the National Stock Exchange, the paper in its two series gained 2.8 and 3.6 per cent.

Considering that investors put in their money in the bonds just 34 days ago, their gain was fantastic. Based on Day One returns, the annualised pre-tax return for Series I (8.2 per cent) and Series II (8.3 per cent) works out to 33 and 43 per cent, respectively.

At the current market price of the 10-year Series I, the current yield after the listing gains is around 7.78 per cent. This is a tax free rate resulting in a pre-tax yield of 11.26 per cent for the highest tax bracket.


For the 20 per cent tax bracket, it is at 9.80 per cent, according to a note by ICICI Securities.

With such mega returns from the NHAI bond, investors will be looking forward to the listing of other tax-free bonds from Power Finance Corporation, IRFC and Hudco.

Investors should continue to hold these bonds, as apart from a tax free yield of 7.78 per cent (pre-tax: 11.26 per cent), there is the possibility of further capital gains once RBI starts cutting rates.


Being a long-term government backed bond, it also reduces the re investment risk once system interest rates come down. The bond deserves to be part of any fixed income portfolio.

The issue was oversubscribed 3.8 times in the QIB category and 2.7 times in the HNI on the first day itself. NHAI began with a plan to raise Rs 5,000 crore from the bonds but ended up with Rs 10,000 crore.


However, only half of the allotted retail portion was subscribed.

Currently, fixed deposit rates for five years and more are around 9.5-10 per cent. Therefore, for investors in the highest tax bracket, the NHAI bonds should be preferred to FDs.

Because of the large issue size of Rs10,000 crore and high institutional interest, liquidity is likely to be better than in the case of other bonds. Therefore, they should be able to transact without much transaction cost in future also.

The market price of the bond should improve when inflation dropped.

Then one can get a very good price with a fall in the yield.

 

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  7. SBI Magnum Tax Gain Scheme 1993
  8. Sundaram Tax Saver

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