Categories: Investment PlanningTax Planning

PFC Tax-Free Bonds 2015-Features, Review and Benefits

Few days back NTPC came with Tax-Free Bonds and it was almost oversubscribed within few days. Now it is the time of PFC Tax-Free Bonds 2015. The issue will be open for subscription from October 5th, 2015 and closes on October 9th, 2015. Let us look at it’s features, review and benefits.

You might have heard about how there was a buzz about recently closed NTPC Tax-Free Bonds 2015. On the first day itself, it was pre-closed. As against the subscription offer of Rs.700 Cr, the bids received was almost around Rs.7,700 Crore. It was almost oversubscribed for around 11 times. But the retail oversubscription was around 6 times.

Why there is such a huge rush towards these tax-free bonds? The reason is, all are in anticipation that RBI will reduce the interest rate. This will definitely harm the individuals who fully depended on a fixed rate of investment. Hence, by locking their money in such tax-free bonds, they want to get the benefits of yield. Because, whenever there is a fall in interest rate, bonds will always give you higher returns, especially if the duration is long. Higher the duration means higher the benefit. But this higher benefit always comes with higher volatility also. Who cares??

Let us first discuss the company. What is PFC or Power Finance Corporation?

PFC is a Navratna Company and a leading power sector, public financial institution and a non-banking financial company providing funding and non-fund based support for the development of the Indian power sector. The company offers various financial products, namely Project Term Loan, Lease Financing, Direct Discounting of Bills, Short Term Loan, and Consultancy Services, etc. for various Power projects in Generation, Transmission, and Distribution sector as well as for Renovation & Modernization of existing power projects. The funds raised through Issue will be utilized towards on-lending to infrastructure projects.

Features of PFC Tax-Free Bonds 2015–

As I said above, the offer period starts from October 5th, 2015 and closes on October 9th, 2015.
These bonds are rated AAA by CRISIL, ICRA, and CARE. These ratings are for this FISCAL YEAR. Do remember that these ratings tend to change based on the company finance. Hence, never be in a wrong belief that current AAA rating by these rating agencies will be forever up to your bond period.
Coupon Rates for Retail Investors are 7.36% for 10 Years, 7.52% for 15 Years and 7.60% for 20 Years.
The interest will be payable on yearly base and there is no TDS on this. Woow…no TDS means greater opportunity 🙂
Each bond face value is priced at Rs.1,000.
Minimum investment is Rs.5,000.
These PFC Tax-Free Bonds 2015 will be issued based on first come first serve base.
You can hold PFC Tax-Free Bonds 2015 in Demat as well as the physical format too. In NTPC Tax-Free Bonds 2015, you are eligible to hold only in Demat format.
The bond will be listed in BSE after the issue. This means, if you want to sell it, then you can do it in BSE.
NRIs are also eligible for this subscription.
You can nominate while subscribing for bonds.

In below images, I outlined the features and also the effective interest rate for each individual.

Whether you can invest or not?

Those who are fond of SAFETY, CONSTANT INCOME, and LONG TERM INVESTMENT can go ahead with such products.
These are long term investments. Hence, don’t run behind the hype of interest rate cut and short term benefit. However, think of the effect on holding such bonds till maturity. Because the same current interest rate trend may not be there after a few years.
Never believe only on RATINGS. They are dynamic in nature. Hence, understand the risk involved rather than blindfolded following ratings.
In my view if you are in need of constant tax-free income then go ahead. However, if your goal is to accumulate the wealth, then I don’t think it is a good idea. Because the interest payout is annual. If you don’t wisely use this interest received, then you may end up in losing the compounding effect.
There is no tax benefit while investing. Hence, you can’t claim deductions like under Sec.80C. Interest is totally tax-free ONLY if you held till the maturity. If you sell in a secondary market, then you are liable to pay capital gain taxes.
There is a huge recommendation that higher tax bracket individuals MUST invest. But investing without a proper goal is a disaster. Hence, never concentrate only on one aspect of TAX-FREE, but align your investment to your financial goals.

Our posts related to bonds-

BasuNivesh

Next Video Tutor-How to fill new Form 15G & Form 15H? »

Previous « Whether you have a right Health Insurance Plan?

View Comments

ANANTHA says:

February 4, 2016 at 1:55 PM

NTPC Tax-Free Bonds 2015 GIVE DETAILS ABOUT IT, IMPORTANT FOR ME PLEASE TELL ABOUT THIS BOND IS IT GOVT BOND?
- Basavaraj Tonagatti says:
  
  February 4, 2016 at 3:21 PM
  
  Anantha-What you want to know? It is not a Government bond. But Government owned company bond.
bhakta says:

January 5, 2016 at 10:07 AM

Would like to invest in tax free bonds... want the interest to be credited to my dad's account directly. Acn this be done or I need to open a joint account with my dad where interest will come and my dad can operate th account.
- Basavaraj Tonagatti says:
  
  January 5, 2016 at 10:17 AM
  
  Bhakta-If you want interest to be in your father's account, then why not invest jointly with him?
  - bhakta says:
    
    January 6, 2016 at 2:01 PM
    
    Would like to invest in tax free bonds... want the interest to be credited to my dad's account directly. Acn this be done or I need to open a joint account with my dad where interest will come and my dad can operate th account.
    
    Do I need to open a joint d-mat account then?
Kamal says:

January 3, 2016 at 8:14 AM

Hello Basu sir,

Are there any tax free issuance upcoming in 2016 ? Also if you could clarify where these bonds can be bought from ? Does one need Demat to hold TaxFree bonds ?

Kamal
- Basavaraj Tonagatti says:
  
  January 3, 2016 at 3:49 PM
  
  Kamal-Yes, there is one offer in 2016. It is IREDA 7.74% tax-free bond. You can buy them through brokers (like stock brokers). All broking firms offer these products. Demat option is optional and depends on the bond feature.
Sunil Narain says:

October 22, 2015 at 12:26 PM

Dear basavaraj,

Thanks for your advice earlier. I had paid by cheque Rs 5 lac to my broker to invest in PFC bonds but to my surprise I got back almost entire money ( 4.6 plus lacs) back in my account!!!! This is strange. My broker said he will let me know soon the situation but I wanted to ask what is this? Even if it was oversubscribed why was not the entire amount returned? Please suggest what to do? What will I do with 40,000 odd rupees in bonds. Any idea what to do?
- Dr. Sunil Narain says:
  
  November 3, 2015 at 5:53 PM
  
  Hi! Spoke to Pfc office Delhi. Told they were instructed to ensure everyone gets % of bonds so due to oversubscribed issue everyone gets something. I feel they should respect mandate and make it all or none unless customer allows.
  - Basavaraj Tonagatti says:
    
    November 3, 2015 at 6:21 PM
    
    Sunil-Thanks for updates.
Ajay says:

October 21, 2015 at 6:18 PM

Hi,

I have one very stupid question :

I got PFC bonds assigned at the price of 1000 per unit at 7.6 % interest rate

so if i buy more quantity at the price 1055 in open market, will I get interest rate on 1055 price or on the base price which is 1000?
- Basavaraj Tonagatti says:
  
  October 22, 2015 at 12:14 PM
  
  Ajay-It is on Rs.1,000. You bought only because you need it. This is how due to buying at premium from face value leads to low yield. Because for Rs.1,000 investment you receive 7.6%. But the bonds you bought from secondary market also be of Rs.1,000 face value. Hence, they pay just 7.6% on Rs.1,000 but not on Rs.1,055.
suresh says:

October 20, 2015 at 6:20 PM

Sir

I have been investing in Bajaj Allianz ULIP for 7 years . I have not claimed any Tax benefit thru Sec 80C. In case I plan to surrender the policy, will the fund value reimbursed be treated as income for taxation in the year of surrender?

Thanks

Suresh
- Basavaraj Tonagatti says:
  
  October 20, 2015 at 6:55 PM
  
  Suresh-Read my earlier post "Tax Benefits of Life Insurance".
Sunil Narain says:

October 9, 2015 at 4:22 PM

Dear Sir,

I have invested in PFC bonds since I had money lying idle in bank FD. Can you please tell me where I should put rest of money lying idle in Bank FD? I am already running SIPS in 3-4 MFs, NOT ELSS (Total outflow 8000/ per month only) as per your advice in this site but the lump sum in FD is bothering me since I am in 30 % bracket govt sector job. I have 5 lacs surplus which I want to invest long term. Shall I put in ELSS lump sum or make SIPS from it. Will truly value your input. Regards.
- Basavaraj Tonagatti says:
  
  October 9, 2015 at 8:25 PM
  
  Sunil-Never keep a single rupee as IDLE. Assign task then think of product.
- Sunil Narain says:
  
  October 9, 2015 at 4:40 PM
  
  long term means 10 yrs plus!
  - Sunil Narain says:
    
    October 9, 2015 at 5:02 PM
    
    I'd like to add since you will want specifics. I am invested icici blue chip opp rs2500/pm, icici prud dynamic (G) rs2500/- Can robecco balanced G rs2500/- and old scheme running for 4th year hdfc top 200 rs 1000/pm. So its 8500/- total. Plus I have PPF maximum and NPS mandatory. Have no real estate; stay with parents. So I thought to park surplus FD in elss fund. Do guide.
    - Basavaraj Tonagatti says:
      
      October 9, 2015 at 8:12 PM
      
      Sunil-But do you know ELSS also be equity fund and also you checked the overlap if you do so?
koel says:

October 6, 2015 at 6:40 AM

Hi ,I would like to know of the withdrawal procedure,something called 80% isr etained for annualization ,what does it mean.
thanks Koel
- Basavaraj Tonagatti says:
  
  October 6, 2015 at 10:14 AM
  
  Koel-80% is retained for annualization? Is it related to Tax Free Bonds? I don't think so.
SHASHIKANT SARAOGI says:

October 5, 2015 at 11:46 AM

THOUGH YOU HAVE MENTIONED MINIMUM SUBSCRIPTION AMOUNT OF RS 5000 FOR RETAIL INVESTORS .PLSE ADVISE FOR THE MAXIMUM INVESTMENT LIMIT FOR RETAIL INVESTORS.
REGARDS
- SHASHIKANT SARAOGI says:
  
  October 5, 2015 at 7:28 PM
  
  Thanks
  Also please advise details of future forthcoming Tax Free Bonds issues.
  Regards
- Basavaraj Tonagatti says:
  
  October 5, 2015 at 12:53 PM
  
  Shashikant-It is Rs.10 lakh.
hutokshi sutaria says:

October 1, 2015 at 2:44 PM

which are the other tax free bonds one can invest. PLEASE COMMENT ON TATA POWER BOND. thanks
- Basavaraj Tonagatti says:
  
  October 1, 2015 at 3:24 PM
  
  Hutokshi-Currently you can subscribe to PFC Tax-Free Bonds. If you want to buy the old offers, then you have to buy it from secondary market. There is no such tax-free bond called TATA POWER.