- May 2014
- December 2013
Ruby Jacob, 21 Feb 2013
HUDCO's 2nd lot of tax-free bonds are up for subscription and the tranche-2 issue will be open from 21 February 2013 to 15 March 2013. It had raised funds earlier in January in tranche I of its tax free bonds.
Why is HUDCO issuing bonds?
HUDCO is a housing finance company. It provides long term finance for constructing houses and undertakes urban development programmes. Some of its funds are raised from the market in the form of bonds. HUDCO will raise about Rs 500 crores in tranche II of these series.
Are HUDCO tax free bonds safe?
Yes, we are quite comfortable with the rating it has got from the rating agencies. HUDCO is a wholly owned company of the government of India.
What are the returns in HUDCO Tranche II bonds?
10 years bonds- 7.53%
15 years bonds- 7.69%
If your application is less than Rs 10 lacs you come under retail category (category IV). The minimum application amount is Rs 5000 and the face value of each bond is Rs 1000.
Can NRIs apply for these bonds?
Yes, NRIs can apply for these bonds on repatriation or non-repatriation basis. NRIs would come under category III of investors. Coupon rate will be slightly less for them.
How to apply for HUDCO Tranche II Bonds?
Application of HUDCO bonds can be made in both physical and demat form. Application can also be made in ASBA or non-ASBA mode.
Applications must be made only in the prescribed Application Form. You can download the forms or apply online through SBI Capital Markets, Karvy Computershare, Axis Capital, ICICI Securities or Kotak Mahindra Capital.
What is tax free in HUDCO bonds?
Here is where you need to pay good attention. Firstly it has nothing to do with tax rebate of Sec 80 CCF. Section 80 CCF (Rs 20,000) has been scrapped this year and you will not get any tax rebate on infrastructure bonds like the one you got last year. Hence please do not fall for this trap.
Now, what is tax free? Income is taxable. Similarly interest is treated as income and is taxable. For example one earns interest from his fixed deposits with banks and he needs to pay tax on it. But in the case of these bonds the interest you earn is tax free. The investment itself does not qualify for any rebate only the coupon interest is tax free. But in case you sell the bonds before maturity you need to pay capital gains tax. So you pretty much need to hold till maturity if you really wish to get tax free returns.
Is there any lock in HUDCO bonds?
No, though the only way to exit is by way of selling it in the secondary market. These bonds are to be listed on BSE and NSE. But this does not make the bonds any liquid. Tax free bonds are not freely traded on the exchanges. You might be able to find buyers since once traded by the original bond holder they earn lower interest rate. Less volume of traded bonds mean you might not get good value for selling them. And even if you manage to, you'd have to pay capital gains tax.
Is it good to invest in HUDCO bonds?
For retail investors, our take: avoid investing in HUDCO bonds. The coupon rate of 7.53% may not beat inflation rate in the long term. You will not be able to use the power of compounding as well. In fact debt mutual funds can do a better job for you.