10 years - 7.36%
15 years - 7.52%
20 years - 7.60%
Last week State-run power generation company NTPC pre-closed its tax-free bonds. NTPC's issue was oversubscribed morethan 10 times on the first day of the opening of the issue.
Now, investors have another chance of grabbing a slice of tax-free bonds. State-run Power Finance Corporation's (PFC) Rs 700 crore issue opens on 2015 October 5 and closes on October 9.
The PFC issue has three tenures - 10 years, 15 years and 20 years. For retail investors the coupon rate is 7.36% for tenure of 10 years tenure, 7.52% for 15 years and 7.60% for 20 years. The allotment would be on first come first serve basis. The NTPC issue had offered slightly higher rates on tenures of 15 and 20 years.
The effective returns for those in 30% income tax bracket on PFC's tax-free bonds of 10-year tenure works out to be about 10.3 per cent.
Moreover, since the interest income on the bonds is income tax exempt, no TDS (tax deduction at source) is levied, unlike bank deposits.
Tax-free bonds are a fantastic option for high-networth individuals and those in 30%tax bracket. Even for those in 20% tax bracket it is a good option.
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