IFCI NCD 2015
One aspect in favour of IFCI is that it is owned by Government of India, which makes the risk of default very low. However tax free bonds are offering higher post-tax yield for individuals in 20-30% tax slab.
About the Issue:
IFCI Ltd has planned an issue of Secured, Redeemable, Non-Convertible Debentures (NCDs) amounting to Rs. 250 crores with an option to retain over-subscription upto a residual shelf limit of Rs 790.81 crore. The details of the issue are as under:
Issue is rated by ICRA as "A (Stable)" and Brickwork Ratings as BWR "AA- (Outlook - Stable)".
| Tenure (Years) | 5 | 10 | ||||
| Effective Yield (p.a.) | 9.45% | 9.50% | ||||
*Interest Payout Option is Annual and Cumulative. Details are for HNIs and Retail Individual Investors
Taxation Implication:
Interest earned on these NCDs will be taxable as per the tax slab of the investor. There is no Tax Deducted at Source (TDS) on NCDs in the demat form. However, TDS will be applicable if the NCDs are taken in the physical form and the interest amount exceeds Rs. 5,000 in any financial year.
Moreover, if these NCDs are sold after being held for more than 12 months, the investor is liable to pay long term capital gain (LTCG) tax at a flat rate of 10.30%. And, if sold prior to the completion of 12 months, short term capital gain (STCG) tax is applicable at the slab rate of the investor.
About the Company:
Industrial Finance Corporation of India (IFCI) was established by the Government of India (GOI) in the year 1948. IFCI was established with the intention of meeting the long-term finance needs of the industrial sector. IFCI is listed on the BSE & NSE and the share price closed at Rs. 38.05 on 5 Jan 2015 . The GOI has a 55.5% (approx) holding in the Company. IFCI has a net worth of Rs. 7000 crore (approx) and has reported a Profit After Tax (PAT) of Rs. 566.1 crores in FY13-14 vis-a-vis Rs. 497.4 crores in FY 12-13. IFCI has also been a dividend paying company for the last 5 Financial Years.
Where should you Invest?
Before making an investment decision the following should be kept in mind.
1. Safety 2. Liquidity and 3. Return
While an investor could also look at the Fixed Deposits available in the market, these are not included in our analysis, which is presently restricted to listed bonds (taxable/tax-free).
Taxable Listed NCDs / Bonds
| Issue Name | Rating | Tenure (Approx Years) | Coupon Rate (p.a.) | Effective Yield (p.a.) | ||||||
| Muthoot Finance Limited | AA- | 4 | 11.25% | 12.50% | ||||||
| Shriram City Union Finance Ltd | AA | 4 | 10.75% | 10.59% | ||||||
| IFCI Limited | A | 10 | 9.90% | 9.87% | ||||||
| IFCI Limited | A | 10 | 9.90% | 9.67% | ||||||
*Effective yield is calculated as on 1st January 2015. Subject to availability of Bond at the price
*Annual & Cumulative Interest Payout Frequency is taken
It would make sense for an investor to buy IFCI NCDs (10 year tenure) directly from the market as the returns would be higher than they are at the current issue. With a 5 year time horizon you could invest in paper with a higher rating and a higher yield than IFCI. However, one aspect in favour of IFCI is that it is a GOI entity and hence, the risk of default is extremely low.
Tax-Free Listed Bonds
| Issue Name | Rating | Tenure (Approx Years) | Coupon Rate (p.a.) | Effective Yield (p.a.) | ||||||
| India Infrastructure Finance Company Ltd | AAA | 9 | 8.26% | 7.70% | ||||||
| National Highways Authority of India | AAA | 9 | 8.52% | 7.54% | ||||||
| India Infrastructure Finance Company Ltd | AAA | 9 | 8.41% | 7.15% | ||||||
*Effective yield is calculated as on 1st January 2015. Subject to availability of Bond at the price
*Annual Interest Payout Frequency is taken
Tax-free bonds are suitable for investors who are in the 20-30% tax bracket as the post tax yield will be much better than that of IFCI. The post tax yield on IFCI (10 years), for an investor who is in the 30% tax bracket, will be 6.56% p.a.
Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015
1. ICICI Prudential Tax Plan
2. Reliance Tax Saver (ELSS) Fund
3. HDFC TaxSaver
4. DSP BlackRock Tax Saver Fund
5. Religare Tax Plan
6. Franklin India TaxShield
7. Canara Robeco Equity Tax Saver
8. IDFC Tax Advantage (ELSS) Fund
9. Axis Tax Saver Fund
10. BNP Paribas Long Term Equity Fund
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