THE first issue of tax-free bonds to the general public in over five years has received a good response with bids for the issue crossing the greenshoe mark as well. National Highways Authority of India's (NHAI) Rs 5,000 crore issue of tax-free bonds with a greenshoe option of another Rs 5,000 crore has been oversubscribed twice over.
Till the end of Wednesday, we received total application money of Rs 23,000 crore, however, the retail investor bucket was still trailing at around Rs 628 crore out of the total limit of Rs 3,000 crore.
"We want to keep the window open for the retail investors so that they can benefit out of this golden opportunity of stable return for the next 10 to 15 years," said AJ Singh, director finance at NHAI.
The success is attributed to the huge interest shown by high net worth investors and companies in investing in a quasi-sovereign body that offers very good post-tax returns without much credit risk. The last public issue of such tax-free bonds was the 6.5 per cent tax-free bond on tap issuance managed by the Reserve Bank of India (RBI) in the early half of the previous decade. With a first come first serve allotment process for non-retail bidders, the issue, which has galvanised the so far moribund investment banking community, seems to have garnered an excellent response. Experts said the response il lustrates the large amount of savings waiting on the sidelines for a suitable investment opportunity.
NHAI has offered a coupon rate of 8.20 per cent for 10 years and 8.30 per cent on the 15-year bond. While this is lower than the present rates on the public provident fund (PPF), there is no variability of coupon year on year like the PPF. Also, since these bonds will be listed on the stock exchange and are being issued for a substantially large amount, they are expected to enjoy good liquidity due to the zero lock in nature.
Markets, said that the similar issues, which are lined up from PFC, HUDCO and Indian Railway Finance Corporation (IRFC), are expected to get a good response from investors as they provide stable returns over longer period.
IRFC will launch Rs 10,000 crore tax-free bonds while Power Finance Corporation (PFC) is coming out with Rs 5,000 crore tax-free bonds, and Housing and Urban Development Corporation (HUDCO) will launch another Rs 5,000 crore bond, between now and end January 2012, said investment bankers.
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