Fixed Income
IRFC, Hudco tax-free bonds—Understand the step-down feature before investing

If you missed the recent NHAI and PFC tax-free bonds issues, IRFC and Hudco bonds are here to entice investors. But, the step-down feature will incentivise real investor rather than someone trying to make a quick buck by swiftly selling it in the secondary market


IRFC (Indian Railway Finance Corporation) will offer 8.15% and 8.30% per annum (p.a.) to retail customers (Individual and HUF below Rs5 lakh investment) for bonds with maturity periods of 10 and 15 years, respectively. HNIs (high net worth individuals) and QIPs (qualified institutional investors) will get interest rates of 8% and 8.10% p.a. for same terms.

Hudco (Housing and Urban Development Corporation) will offer 8.22% and 8.35% p.a. to retail investors for bonds with maturity periods of 10 and 15 years, respectively. HNIs and QIPs will get interest rates of 8.10% and 8.20% for the same terms.

Both issues will have a step-down feature. It means that any buyer in the secondary market will only get non-retail (HNI and QIP) investor rate. The flip side is that the seller will have to sell bonds at a little discount. The step-down feature is obviously to encourage real investors to subscribe for the issue instead of someone trying to make a quick buck by swiftly selling it in the secondary market.

The IRFC and Hudco issues will benefit retail investors who invest with the intension to hold the bond till maturity. With the interest rates probably at its peak, retail investors will benefit if they have to sell the bonds after some period when the interest rates in the market goes down enough to compensate the effect of step-down feature. The value of bonds will increase as market interest rates drop.

Both bond issues have reserved 30% for retail investors, 25% for HNIs and 45% for QIPs. IRFC bonds have been rated ‘AAA’ by ratings agencies CRISIL and ICRA, while Hudco bonds have ‘AA+’ rating by CARE. IRFC’s Rs5,000 crore issue and Hudco’s Rs4,685 crore issue open on 27 January 2012. IRFC’s minimum application is for Rs5,000 (five bonds) in both options (10 and 15 years), while the interest payment will be annual.

According to Yogin Sabnis, managing director, VSK Financial Consultancy Services, “Anything above 8% tax-free is a good option. Check the rating of the issue before investing. In the past there was no retail quota and subscription used to get over on the first day itself. Reserving retail quota is good for investors.”
Rural Electrification Corporation (REC) plans to raise close to Rs4,000 crore through tax-free bonds by the end of March.

Recently, NHAI and PFC tax-free bonds were offered for 8.2% and 8.3% p.a. interest for 10 and 15 year bond, respectively. HNI and QIP quota was oversubscribed by 2-3 times. In some places, retail investors were offered money to apply for the issue which was later sold to HNIs or QIPs who wanted to put their hands on more bonds than allowed under their quota.

While there is lot of awareness of 80CCF bonds due to advertising and distributor push, the retail investor was caught unaware about tax-free bonds recently issued by NHAI and PFC. These do not qualify for upfront tax savings, but the interest generated is tax-free as against the 80CCF infrastructure bonds whose interest is taxable. NHAI and PFC tax-free bonds will more than double your money in 10 years and the icing on the cake is tax-free interest. HNI and QIP quota was over-subscribed as there is genuine need for tax savings on generated interest.



Anshul Gupta

5 years ago

Even at the rate of non-retail i.e. 8%, secondary market buyer will be at a advantage as there is no other product in the marked which can give assured yield of 11.57%

I believe. Therefore I am

Belief is a strange thing. It becomes attested to by agreement. And a lot of agreement persistently applied over time assumes the character of dogma masquerading as fact

I went for a country jaunt the other day. Not in the Wordsworthian manner of o’er glen and dale, but through a rough dusty path in a coastal forest, that led to a rocky shore. It was beautiful.

But it was a trifle marred by the mild twisting of my ankle as I pretended to be younger than my years and leapt not so lithely over the big rocks. This did put a bit of a cramp in my weekend.

So as I hobbled around the house, this friend of mine said to me that I should use this amazing ‘miracle’ ointment that she had discovered which she said had restored her to pristine condition in just 24 hours after she too had sprained her foot.

She gave it to me. And it had exactly the same formulation as the one I had in my medicine shelf. So when I showed it to her, she insisted that hers was different.

My wife has similar opinions on painkillers. The ibuprofen analgesic she buys in London she says is much more effective than the same one she could buy here. When I remonstrate that the formulation is no different, she says that ‘hers’ works faster.

I am unable to convince her that pharmacopeia does not really differentiate. She is a believer and that’s that.

This got me thinking about the structure of belief.

We believe because we experience.

In fact it is learned behaviour. In as much as migrating birds will believe that there is still a nesting site where now a fume-spewing factory sits.

When I was a child, my grandmother told me the stories of the Ramayana and the Mahabharata. The way she told me the stories, often pointing to the framed and garlanded pictures and the decorated idols in her puja room was always direct to me, asking me to not just listen to her but to have faith in the tales. In her voice I heard the belief of generations. These heroes and villains were real people, populating a universe in her mind as visceral and tangible as the cold floor under my small limbs as I sat listening to her. As a boy I would pray to Hanuman, the great and wonderful super monkey, more powerful than Superman endowed not just with strength but the divine energy that comes from being the perfect disciple.  The prayers were not to a disembodied God but to a real friend in whom I believed in to rescue me, to help me pass exams, to protect ne from the school bully, to make my mother not cry when she had a fight with my father, to bring my father safely home and to generally reward me with goodies. A lot of the prayers were intended to give me the same powers Hanuman had. Vroom and Whoosh were sounds that followed the prayers!

Belief is a strange thing. It becomes attested to by agreement. And a lot of agreement persistently applied over time assumes the character of dogma masquerading as fact.

Sometimes belief requires refreshment.

Take the case of the Ramayana itself. It was a beautiful story, embellished by centuries of telling, of enactment in village fairs and even in movies that starred somewhat fleshy heroes and heroines and appalling monkey-makeup with astonishingly starched tails.

In the hinterland of this vast country, Rama and his story was worshipped in temples and at festivals, celebrating good versus evil, the idea of purity and righteousness and often the sheer joy of an adventure well told.

I believe (and there is that word again!) that he wasn’t historical as he was legendary, the power of legend being often more powerful than history. He was seen as an idea to be emulated and for the majority of us, the Ramrajya, the rule of the Dharmic King was what India should have had.

And then came the amazing phenomenon called the Ramayana! A TV serial, free to air, beamed into the house every Sunday morning through, at that time, the only television channel that we had. The brainchild of a moderately successful Bollywood film producer, the Ramayana created television history. Not only in India but worldwide. No other series then or now had this impact with viewership exceeding possibly 200 million for each episode. Given that it ran for 78 episodes, the aggregate far exceeded the population of this planet!

Every Sunday morning for about two hours the streets of cities and villages were almost deserted. When we had to travel, we felt sorry for ourselves that we were not in front of the new altar of worship. When we saw, say the lone policeman or the obliged worker doing a lonely job, we felt really sorry for them. This serial transcended religion, caste and region. We suspended all disbelief as really bad special effects made monkeys, chariots and arrows fly. We had no problem in the pasty and plastic makeup of Hanuman. Rama, Sita, Lakshman were perfect, not a hair out of place, sparkling with ornamentation and with eyes that oozed compassion and love. We could not now think of the image of any of them without visualizing their television counterparts. Some years later, the actress who played Sita won a cakewalk election; no doubt that the voter thought he was electing the very embodiment of womanly virtue and purity. (She of course followed the example of a south Indian actor who had played Rama in a motion picture, reprising the role a few times in various versions, and who even had Rama as his first name, who became the chief minister of India’s second most populous state, building on the image of his screen persona.)

Belief is created, manufactured and sustained by the factories of collective minds. It makes things real for us. This is not to deny existence of history. But the truth is we assume that something is such and such, because someone of repute has said so. The person’s repute is created either by the masses or by the few who themselves had earned repute from a few more who have gained repute and so on in a chain of mutual fulfilment.

Empirical data is cited as reason to believe in something. We call this scientific proof for the belief.  We assume that such fact is substantiated and verified. We see the repetition of effects from relative causes as verification and we believe. And these things may be true. Or not.  Time will and does tell, as we have seen with various long held beliefs now discredited by new beliefs.

Right or wrong does not feature in this. It is what it is, to parody the great sailor, Popeye.

So it came to pass that with God made flesh by man, politicians who are always smarter than the rest of us, took out processions, dressed as the Hero of Ages. The bow and the arrow was Symbol, with a capital S. And in that frenzy of belief, it also came to pass that what was a symbolic, (with a lower case ‘s’), place of inspiration and even worship, became a historical monument, the ‘undisputed’ birthplace of Rama himself.

Where now in the precise latitude and longitude, stood a defiling mosque, built 400 years ago.

And driven by the unintended consequence of a television serial, pushed by the unstoppable power of belief, it was brought down to try to rebuild the birthplace of a God. And an already fractious India split. Never to be the same again.

Belief created more belief for the “non- believers”—that they would always be separate and oppressed.  And that their belief that they were children of a different God was buttressed. One set of beliefs created the perfect ground for the most fanatical form of believers to enter and some say even flourish, in what till then had been a (relatively) mutually accommodating environment.

Not for one moment did anyone stop to consider that the idea of God in any belief system presumes omnipresence. And that one stone or one idol or one place of worship cannot circumscribe a divine location.  But belief seeks little logic, once convinced of its own truth.

There are those who say that terrorism flourishes only because of media. That in fact what the terrorist craves the most is to get attention and publicity. Maybe in this case—media created the terrorism.

We choose our destinies. Because we believe.

(V Shantakumar is the former chairman & CEO of Saatchi & Saatchi in India. He is now the managing partner at Doing Think, a consulting company. Mr Shantakumar has over four decades of wide ranging experience as a marketing strategist and communication specialist and has played a key role in the creation and growth of some significant brands in India.)



Prakash Basrur

2 months ago

Perhaps only a "12th Avatar" of Lord Vishnu can help us in all our problem-solving attempts such as Aadhar ! We Indians , having developed our brain cells by remembering the Vedas by-heart , do not seem to need technologies like the computer and science of Mathematics ( particularly the "Algorithms" & the "Models" ) ! Our fabulous power of arguing on any subject has been going on for the last 5000 years , say for example in having lengthy discussions on our religious philosophy by Acharyas in the courts of Kings all over India ! Over the years we have added to this tradition of "argumentative Indian" the "modern scientific temper" to make our confusion ( and thereby not having a steadfast goal for achievement ! ) worst confounded ! Aadhar is the latest in this "intellectual argumentativeness" of ours ! Instead of finding a "course correction" , from time to time , in the journey towards our goal we have evolved a new intellectual pastime of arguing on the "biometric" & "percentage correction" and so on and so forth ! I can only say " Jai Ho !" to all those intellectuals enjoying their intellectual pastime on a "live" topic of Aadhar till another such new issue crops up ! "Mera Bharat Mahan" !

Share prices up on CRR cut: Tuesday Closing Report

Nifty to move in the range of 5,000 to 5,150

The RBI’s move to boost liquidity through the 50 basis point cut in CRR helped the benchmarks close with gains of around 1.50% today. The central bank’s move helped the Nifty close above the resistance of 5,100 we had mentioned in our Monday’s closing report. The Sensex and the Nifty closed at 16,996 and 5,127, their highest since 15 November 2011. From here we may see the Nifty moving in the range of 5,000 to 5,150. The National Stock Exchange (NSE) saw its highest volume of 87.24 crore shares in the current uptrend, which began on 2 January 2012.  

The domestic market, which closed flat on Monday, opened with small gains on speculations that the Reserve Bank of India (RBI) in its quarterly monetary policy review would not revise interest rates. The Nifty started trade at 5,065, up 19 points, and the Sensex gained 55 points to 16,807 at the opening bell. Buying in banking, capital goods, consumer durables and oil & gas sectors supported early gains.

The indices fell to the day’s lows in the first hour with the Nifty at 5,050 and the Sensex at 16,770. The market was sideways in the positive terrain until the monetary policy announcement. The announcement of a 50 basis point cut in the cash reserve ratio (CRR) by the central bank pushed the indices higher. The news resulted in the BSE Bankex emerging as the top gainer and all other sectoral gauges trading in the green.

The indices continued their northbound journey as trade progressed with the benchmarks hitting their intraday highs in noon trade. At the highs, the Nifty scaled 5,141 and the Sensex crossed the 17,000 mark at 17,050.

The benchmarks gave up a small part of the gains in the last half hour, but closed with good gains even as the European markets were down 1%. The Nifty closed trade at 5,217, up 81 points and the Sensex settled 244 points higher at 16,996.

The advance-decline ratio on the NSE was positive at 1081:646.

Among the broader indices, the BSE Mid-cap index surged 1.38% and the BSE Small-cap index advanced 0.70%.

The rally enabled all sectoral indices close higher. BSE Capital Goods (up 3.30%); BSE Bankex (up 3.21%); BSE Metal (up 1.78%); BSE Auto (up 1.53%) and BSE Realty (up 1.14%) topped the list.

The top Sensex gainers were Larsen & Toubro (up 5.64%); State Bank of India (up 5.19%); Hindalco Industries (up 4.55%); Mahindra & Mahindra (up 3.56%) and ICICI Bank (up 3.30%). The top laggards on the index were Coal India (down 1.35%); Sun Pharma (down 1.29%); NTPC (down 0.94%); GAIL India (down 0.72%) and Hindustan Unilever (down 0.52%).

The best performers on the Nifty were L&T (up 5.93%); IDFC, SBI (up 5.53% each); Jaiprakash Associates (up 4.68%) and Hindalco Ind (up 4.48%). Grasim (down 2.32%); Coal India (down 1.57%); DLF (down 1.05%); Sun Pharma (down 0.95%) and HUL (down 0.77%) were at the bottom of the index.

While the Japanese and Indonesian markets were open for trade, other markets in Asia were closed for the Lunar New Year holidays. Both benchmarks closed with marginal gains on renewed concerns about Europe as the region’s finance ministers refused to pool in more public money for Greece, asking on bondholders to provide greater debt relief to help ease the way out of the crisis.

The Jakarta Composite gained 0.20% and the Nikkei 225 rose 0.22%. At the time of writing, key indices in Europe were trading with cuts of nearly 1% and US stock futures were in the negative.

Back home, institutional investors—both foreign and domestic—were net sellers of equities on Monday. While foreign institutional investors pulled out funds worth Rs58.80 crore, domestic institutional investors withdrew Rs438.48 crore from stocks.

Bangalore-based Strides Arcolab today announced the sale of its 94% shareholding in Ascent Pharmahealth, its subsidiary with operations in Australia and Southeast Asia, to NYSE-listed Watson Pharmaceuticals Inc. As part of the transaction, Watson also acquired the remaining 6% shareholding from Dennis Bastas, CEO of Ascent. Strides Arcolab soared 18.09% to close at Rs481 on the NSE.

Moser Baer’s PV business adopts MIST (Metal and Intrinsic layer Semiconductor Technology) to upgrade its PV cell efficiency to 21% to meet the current industry challenges. This will help the company achieve global competitiveness and provide long term sustainability to the business. The stock fell 0.29% to close at Rs17.45 on the NSE today.

Diversified business group ITC is understood to be gearing up to invest up to Rs1,000 crore in the FMCG segment in the next four years which will include setting up new facilities and enhancing existing capacities. The company did not confirm the figure but said it will invest in building state of the art manufacturing facilities, logistics as well as ramping up existing capacity. The stock gained 0.29% to settle at Rs205.20 on the NSE.


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