IDFC bonds will have a lock-in period of five years. Post five years, these bonds will be traded both on NSE and BSE. At the same time, the company can also exercise the buyback option. Bond investors will get the income tax benefits under 80CCF wherein a maximum investment of Rs 20,000 would fetch tax exemptions to the tune of Rs 2,060 (10.3% of 20,000) - minimum and 6,180 (30.9% of 20,000) - maximum. This is over and above the existing investment limit of Rs 1 lakh. The company has already collected Rs 538 crs in the first tranche in December 2011.
The interest rates are lower than the previous issue as the coupon rates have to be at par with the yield on benchmark securities, and the decrease is in sync with the yield movement over the last month.
Recommendation: We believe that the tax saving bond issue from IDFC is a good long term investment opportunity as well as a tax saving instrument
for investors. As the interest rates are at the peak and the rates are expected to go down this is the best time to enter in the bond market and lock in investments at a higher rate.
Key Concerns:
� Change in interest rates - Increasing rates of interest, resulting from higher inflation are likely to have a negative effect on the price of the NCDs.
� Lack of liquidity - Though NCDs are listed on the stock exchange, there is a problem of liquidity in the markets.
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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