IRFC, IREDA Tax-free Bonds

Indian Railways Finance Corporation (IRFC) extended the closing date of its tax-free bond issue to 7th February. The struggle to raise subscriptions for AAA rated bonds of IRFC could be due to its big issue size of Rs8,663 crore, lower coupon rates than those offered by recent offers as well as the fact that IRFC had already raised money in the previous financial year. Investors rushed to small-size tax-free bond issues of NTPC, NHPC, NHB and NHAI; these were oversubscribed within a few days. It also means that investors are not swayed by just the ratings; there is a need for diversification. IRFC did not have the 20-year investment option which was available for the tax-free bonds of NTPC, NHPC and NHB.

NHAI offered retail investors 8.52% and 8.75% for bond with maturity of 10 and 15 years, while IRFC is offering 8.48% and 8.65% for bonds with tenure 10 and 15 years, respectively. Indian Renewable Energy Development Agency (IREDA) is planning to raise Rs1,000 crore through the issue of tax-free bonds for financing its renewable energy and energy-efficiency projects and to augment the company’s resource base. The bonds are rated AAA by CARE and Brickworks.

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Bajaj Finance’s Fixed Deposit Scheme

Bajaj Finance Ltd has announced the re-launch of their fixed deposit (FD) scheme which has been rated FAAA by CRISIL and MAA by ICRA. The scheme offers competitive interest rates of 9.75% and 10.00% for one-year to five-year tenors of non-cumulative and cumulative options. Bajaj Finance has offered higher interest rate of 0.25% to senior citizens and existing customers of Bajaj Finance Limited. The minimum deposit across locations ranges from Rs50,000 to Rs1,50,000, based on categorisation of cities. All company FDs are risky because they are unsecured. Recently, the Economic Offences Wing (EOW) conducted search operations in six premises of the directors of Yash Birla's Birla Power Solutions in connection with a cheating case registered on 31 December 2013. Investors are unable to get back their deposits.

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Top-rated Corporate Bond Yields

You can expect to get yield of nearly 10% for AAA rated bonds maturing over the next two years. Bonds with lower than AAA rating will give approximately 11% yield to maturity (YTM). The bond yields may increase due to hike in the repo rate by 25bps (basis points) to 8% by Reserve Bank of India (RBI) on 27th January.

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