Tax free bonds worth Rs 40,000-cr to hit street this fiscal

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Tax free bonds worth Rs 40,000-cr to hit street this fiscal

Tax free bonds worth Rs 40,000 crore is set to hit the market this financial year as the government has allowed seven entities to raise funds through this route. Experts believe these bonds will attract investors through it is agreed that the returns would be lower than what it was offered in the financial year 2013-14.

The amount allocated to various entities include tax free bonds of National Highways Authority of India (NHAI) for Rs 24,000 crore, Indian Railways Finance Corporation (IRFC) for Rs 6,000 crore, Housing and Urban Development Corporation (HUDCO) for Rs 5,000 crore, Indian Renewable Energy Development Agency (IREDA) for Rs 2,000 crore and Power Finance Corporation Limited (PFC), Rural Electrification Corporation Limited (REC) and NTPC have been allocated Rs 1,000 crore each. 

"All the issuances are expected to get fully subscribed. It may not happen in day one, but it would get decent response. The public issue portion in these bonds would be 70% and the rest could be done in private placement," said Manglunia, senior vice-president (fixed income), Edelweiss Securities.
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Manglunia added that the indicative pricing based on current market scenario shows that 10-year tax free bonds may get priced at around 7.15%, 15 year at 7.40% and 20 year bonds at 7.48%. The first issue may hit the market as early as in this month.

According to a circular issued by the government the ceiling coupon rate for AAA rated issuers of tax-free bonds would be fixed at 55 basis points below the government bond yield for retail investors and 80 basis points for other investors.

"Tax free bonds are going to give consistent returns to investors over 10-20 years. On the other hand we have a situation where interest rates are going to come down due to which there will be demand for these bonds. Tax free bonds are far more attractive compared with bank fixed deposits.
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