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IRFCL Tax Free Bond

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This is one more tax free bond issue from a government backed NBFC after HUDCO and IIFCL. The issue carries a coupon of 7.68% and 7.84% 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 11.11% and 11.34% 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 the safe avenue to earn tax free income.


Analysis


IIFCL's tax free bond comes with a coupon rate of 7.68% and 7.84% 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 11.11% and 11.34% 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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