Fintotal News Analysis | JNPT Tax Free Bonds Issue- March 2013. What is it About?
JNPT Tax Free Bonds Issue- March 2013. What is it About?
Ruby Jacob, 04 Mar 2013

JNPT's issue of tax free bonds will be open for subscription from 11 March 2013 to 15 March 2013. It wishes to raise about Rs 500 crores in the current issue.

Why is JNPT issuing bonds?

Jawaharlal Nehru Port is a leading port in handling container cargo in the country. JNPT does not have share capital. It runs on loans from the government and other ports. Some of its financing needs are met through bonds it issues in the public market.

Are JNPT bonds safe?

Yes, we are quite comfortable with the rating it has got from the rating agencies. JNPT was established by an Act of the Government of India, who is also its main sponsor.

What are the returns in JNPT tax saving bonds?

Coupon rate

10 years bonds- 7.32%

If your application is less than Rs 10 lacs you come under retail category. The minimum application amount is Rs 5000 and the face value of every bond is Rs 1000.

Can NRI apply for these bonds?

No, NRIs cannot apply for these bonds.

How to apply for JNPT Bonds?

Application of JNPT 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 through lead managers SBI Capital Markets, ICICI Securities or Kotak Mahindra Capital.

What is tax free in JNPT 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 20000) 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 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 JNPT bonds?

No, though the only way to exit is by way of selling it in the secondary market. These bonds are to be listed in BSE and NSE.

But this does not make the bonds any liquid. Tax free bonds are not freely traded on the exchanges. You might not be able to find buyers since once traded by the original bond holder the interest earned is 0.5% lower. 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 JNPT bonds?

For retail investors, our take; avoid investing in JNPT bonds. The coupon rate of 7.32% 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.

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