IRFC Tax Free Bonds Open Today!!

IRFC (Indian Railway Finance Corporation) Tax Free Bonds have opened today and are probably the last TAX FREE bond issue for the year. There is no provision in the budget for 2016-17 for any tax free bonds and any new issue in the next year is extremely unlikely.

Additionally, this is the only issue in 2016 to date for which NRI’s are eligible.

Salient features:

Issue Date – 10th Mar to 14th Mar

Issue Size – Rs. 2450 Crore, of which 60% is reserved for retail investors ~ 1470 crore rupee

Eligibility – both NRI’s and residents

Coupon Rate – yearly interest rate of 7.29% for its 10-year option and 7.64% for the 15-year option to the retail investors investing less than or equal to Rs. 10 lakh

Rating – AAA from CRISIL, ICRA and CARE

There is a very high likely hood that the issue will get oversubscribed in the Retail segment on day one, anyone looking to invest should make an application today.

The current SGD to INR exchange rate is 48.20 offered by DBS Remit. I just made my application and would be looking for capital gains of appx. 15-20% on these bonds over the next 2 years.

 

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87 thoughts on “IRFC Tax Free Bonds Open Today!!”

  1. I think the bonds have peaked globally. So you would do well to cash in the gains now. From here on the I don’t see much fall in yields. On the contrary yields should rise from here. So even after 1 year the gains will be the same, or could even fall. These are long term bonds, so they are very sensitive to rates.

    Like

    1. Global bonds trends do not apply to India – the interest rates in India were moving in the opposite direction as rest of the world. Indian long term Bond prices were falling as the RBI raised interest rates. These bonds will go up as India cuts prime rates and can only fall if RBI raises the rates.
      Globally the interest rates are near zero and as the central banks raise rate the older issued banks market price will fall.
      I see another 10% gain on these bonds as RBI cuts interest rates by 25 basis pointa in next 3 to 6 months.

      Like

  2. Sweet, just checking if you’re aware of any similar upcoming issues? I’d rather be prepared this time than regret last time 🙂
    Thanks Aditya, hope all’s well

    Like

  3. Hi Aditya,
    As your last prediction… now sdg rate above 49.5 and looks increasing further too.
    How long this trend will go?
    Do have any idea when rupee will come back to around 47.5inr against sgd?
    Thank you…

    Like

    1. Hi Srinivas,

      I expect SGD INR to cross 50 and most likely touch 52 in next 3 months. A retrace to 47.5 would require some major positives for Rupee or negatives for SGD and that looks unlikely within this year. However given the political and economic uncertainty anything is possible and making a call for longer than 3 months is as good as guessing the result of a flip of a coin.

      Thanks

      Like

    1. Hi Aditya!
      That’s good information for me.
      As you know, the current rate is not ideal and a good deal of my money that has recently come in, is languishing in Singapore… Waiting to be sent out when the exchange rate improves.
      Danfer

      Like

    1. Hi Rakesh,
      SGD INR is at 48.85 as I write and it can very well cross 49 within this week.
      If you are looking at 49 as the net transfer rate, 49.5 interbank rate, then that should be possible around 15 June when fed fund rate decision is due.
      Thanks

      Like

    2. Dear Aditya,

      Yes thanks once again. Can you please advise for opening an trading account in singapore which bank or trader i shall open and where to invest in singapore.

      Regards Rakesh

      Like

    3. Hi Rakesh,

      I don’t trade in equities so difficult to advise based on my experience but I have heard good things about DBS vickers and with a dbs bank account it should be a pretty seamless experience.

      As of now I expect the equity markets to fall as US raises interest rates so staying in cash or bonds might be a safer bet. However if you are in for day trading or short term trades then it’s a different story.

      Thanks

      Like

    1. Hi Nidhi,

      SGD INR has been hovering around the 49 mark for the past few weeks and I expect it to stay around this level in the coming weeks.

      I think 1.37-38 is a fair level for SGD against USD and INR is 68-70. Rupee is currently around 66.75 and I expect it to fall towards 68 (around 2%) and similarly SGD to move to 1.375 against USD which should bring SGD INR to 49.50 mark.

      cheers

      p.s. do check out the widget to compare the remittance rates on the right side when using desktop and all the way at the bottom of the page when using a mobile device

      Like

  4. Aditya, I got approached by a Smart Owner rep sometime back myself – it seemed like a great idea to invest in Indian real estate (although I agree with Nitin and your comments about transparency and regulation); since the discounted rates they offer are pretty lucrative. I haven’t invested yet, but have been thinking along those lines while waiting for a sizable chunk of money. Would love to hear your thoughts on the company and any sort of investment with them.

    Also, could you be so kind to connect me to your contact who does student residences in UK, I’d be keen too given the proximity! Thanks in advance mate.

    Like

    1. The way I look at smart owner is that the discount is what you would earn in a fixed deposit in 3 years. 7.5% compounded yearly is appx. 25% earnings in interest.
      I don’t think any of the property developers in India compensate buyers if the delivery is delayed and that is my biggest reservation when it comes to property investments in India.
      Drop me a email and I will put you in touch with the UK student housing contact.

      Cheers

      Like

  5. Aditya!
    I agree!
    UK. I spent a great deal of my youth there. I am interested. Significantly more streamlined. Do you have my email?
    Danfer

    Like

  6. Hi Aditya,
    The 7200 psf rate apparently applies to the first floor offices. This is a ground floor unit.
    The contract offers a guaranteed buyback scheme or an assured rental of 56.25 psf per month inclusive of all taxes and service charges.
    Seems fairly lucrative!
    Danfer

    Like

    1. Hi Danfer,

      It sounds good on paper but do consider what happens if this company folds or does not pay the rents? They are most likely not registered in Singapore and in case of any issues you should think what kind of executable guarantees you would have.

      However if you think it’s a sound investment go ahead with it.

      Cheers

      Like

    2. Hi Aditya,
      I agree.. It has it’s ambiguities.
      I feel Smart Owner. In Bangalore is more clear cut and legitimate, even though there are no assured returns. Do you concurr? Or is that dubious as well?
      Danfer

      Like

    3. Hi Danfer,

      I have no personal dealings with either of the companies so difficult to say. Smart Owner to me is basically giving you a discount equal to 3 years worth of interest. Magic Square has its own Grey areas.
      Bottom line is that these companies are there to make money and as Nitin said Indian property market is far from regulated. I have colleagues who have their own horror tales to tell when dealing in Indian property market.
      If regular income and property is your targeted investment I can refer you to someone who does student residences in UK which are quite lucrative. The biggest risk their though is exchange rate fluctuations.

      Cheers

      Like

  7. Hi Aditya,
    Thanks for the prompt reply!
    They offer a buyback scheme after the period ending 31st May 2019. My interest is payable till that date or possession date whichever is later.
    Property market is down in India and expected to pick up, especially commercial property and WTC is a good institution I have been told.
    On sale, after 31st May 2019, I have no idea what kind of tax I am liable for! I have to check up on that.
    This unit is non lockable category.
    The unit is in the signature tower on the ground floor which, I am given to understand is prime. Rate is 7800 per sqft. Area 1140 sqft.
    Square Yards tell me that no further discount is available. Verbally, informed that launch price will be in the region of 9000 per sqft.
    Regards
    Danfer

    Like

    1. Hi Danfer,

      Check on http://www.noidawtc.in, I see same scheme and rates of 7200 for furnished office there. They have the same schemes. My take is that square yards is padding up 10% over the price offered on noidawtc site to cover their costs and profits.

      Also be very sure about what would be the resale price. Will they give something in writting and contract about the resale price? When making a sale people make all sorts of promises but if something is not written in a contract then I just take them as just words.

      Cheers

      Like

  8. Hi Aditya,
    What is your opinion on Square Yards, real estate company?
    They seem to have some very good real estate investment opportunities with regular monthly payments and post 36 month buyback option.
    Any expert opinion?
    Danfer

    Like

    1. Hi Danfer,
      Never heard about these people before and a brief read up on their site tells me that they are integrated property service providers.
      The monthly payments and post 3 year buy back might differ from property to property. I am sure they will not guarantee a buy back price, it will be based on the then property prices.
      A simple way to look at a transaction would be to work out their net monthly payout (after all costs) and compare against risk free options like NRE Fd and bonds.
      Cheers

      Like

    2. Hi Aditya,
      Yup, the agreement is for a 12 %interest rate, payable monthly or quarterly, less 10%TDS.
      My investment is around 93lacs including 3.625% service charges payable to the government. My interest is on the remaining 89 lacs principal.
      The property is WTC Noida. Ground floor commercial unit 1140 sqft.
      The return shall be payable till 31st May 2019 or actual date of possession, whichever is later.
      My investment is 95 %of the total price.. Remaining 5 %on possession.
      Opinions?
      Regards
      Danfer

      Like

    3. Hi Danfer,

      Your post tax return would be 10.33% on the investment. The risks would be
      1. Ability to maintain rent or return post the 3 year period
      2. Capital loss if the property prices fall and
      3. Any taxes to be paid when you sell the property.

      Other than that you should ask if your property is virtual space, locked space, fully furnished or unfurnished office. Also ask what happens if the property is not ready by May 2019? Will they still pay the guaranteed 12%?

      I saw some prices at around 73 lacs for 1400 Sq ft unfurnished office and a guaranteed rent scheme of Rs. 42 per Sq. Ft. Per month.

      In summary I think the builder is offering a 12% rate because it allows them to pre sell the property, lock the profit and also get comparatively cheaper funding (banks might charge them over 12% funding rates).

      Thanks
      Aditya

      Like

  9. Yea, I’m definitely disappointed for not being able to invest in those bonds. The FDs are looking unattractive every passing day. I’m inclined to even buy the bonds from the exchange; but unfortunately the Indians banks only allow a DEMAT or securities account opening in person – that has to be the most ridiculous thing! I’m not gonna be in India before end of year 😦
    I’d definitely be interested to know of any future listing opening up in advance so as to be prepared 🙂

    Like

  10. 200-300 bps would be like a dream come true. I hope it really happens, because that would really improve the profitability of companies by reducing their debt burgen and my equity MF portfolio will do really well.

    Like

    1. The 200 to 300 bps rate cut will happen over many quarters. Most likely next 3 years. The Indian markets are already trading at a PE of 21-22 so even with reduced interest burden the stock markets should not rally more than 10% unless fed also decides to go into negative interest rate territory for some reason. However with 50 – 75 bps rate cut this year the tax free bonds should appreciate 10% which would bring the total return to around 18% (10% capital, 7.7% interest)

      Liked by 1 person

  11. Has the IRFC tax free bond listed on the exchange already? Can you share me the link? Just want to see how much has the bond price appreciated/will appreciate with the upcoming rate cut.

    When I look at long term debt funds which are supposed to jump the most when a rate cut happens:
    http://www.moneycontrol.com/mutual-funds/performance-tracker/returns/debt-long-term.html

    1 month performance is pathetic 2%, this is after underperforming for the last 1 year. Even liquid funds which are super safe have beaten these long term debt funds over 1,2,3,5 years. This is after the rate cut cycle is coming close to an end.

    Like

    1. Here is the link – https://www1.nseindia.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?symbol=IRFC&series=NO

      The recently issued bond has already appreciated 4% since listing (less than 1 month). If you check on IRFC bonds issued in 2013 they have appreciated 11-12%.

      Comparing these Bonds to debt MF is flawed as fund houses have management fee and other expenses, plus their portfolio might or might not be these tax free bonds. Moreover the top fund in the category that you are quoting (money control link) is 85% invested in 1.44% G Sec’s.

      The IRFC Bond or the others in same category give 7.6% or more and are tax free.

      And Indian rate cut cycle has just started its has atleast 200 to 300 bps more to go.

      Liked by 1 person

    1. Hi Nitin!
      Inevitable. However, I have investigated numerous other investment prospects in Singapore and their promoters themselves acknowledged that NRE FDs are as good as it gets here.
      Danfer.

      Like

    2. Hi Danfer,

      The Aspial retail bonds with 5.25% rate that I think closed today we’re not a bad bet from a return perspective but given its a corporate bonds the credit risk is higher.

      Like

    3. Well I had warned readers of the rate cut weeks back. From tomorrow the lending rates have to match the cost of funding as per new RBI guidelines. The govt savings rate cut a week or so back was a pre cursor to this rate cut. Those who invested in tax free bonds would be smiling right now 🙂

      Like

  12. First set of Rate cuts just came in, The interest on PPF and Kisan Vikas Patra cut by 60 to 90 bps. The govt is setting the tone for people to move money to Banks instead of Govt Schemes. The hope is that the banks will pass on the benefits to consumers and the interest on loans will go down.

    Like

  13. Hi Aditya
    Thanks!
    So if they sell to another bank in India, is my money safe?
    The tax free bonds sound great but maybe requiring input and monitoring from my side.. Which I’d like to avoid. My line of work keeps me out a lot and I want an investment that I can initiate and then forget.
    Please advise.
    Danfer

    Like

    1. Yes, your money is safe even if they sell to another bank. The risk would arise if for whatever reason if they go bankrupt like Lehman Brothers.
      The tax free bonds do not require any monitoring. The interest will be credited to your bank account on a yearly basis, just like and FD, and when the bonds mature in 15 years time you will get the principal (face value) back. So once you buy the bond you basically forget about it like the FD. Again you should not put all money in bonds. Split between FD’s and bonds.
      Cheers

      Like

  14. Hi Aditya,
    In view of the strategic decline in interest rates over the coming years, I feel it may be better to have a long tenure FD.
    Unfortunately, most banks reduce interest rates beyond 2yrs. I am looking at 5 yrs.
    Deutsche Bank, however offer an irresistible 9.05% for a 5yr lockin tenure.
    That appears to be a win win situation… Highest interest and for the longest lockin period.
    However, is it a safe bank to invest in… Or has it come up on hard times?
    Need some reliable information on this.
    Would appreciate your feedback concerning this.
    Regards
    Danfer

    Like

    1. Hi Danfer,
      That’s why I was recommending the tax free bonds. They give a lock in of 10 to 15 years and are guaranteed tax free.
      Deutsche Bank has had some negative press I the past few months and their stock is near milti year lows. I would not put the whole amount with them. There can be a possibility that they exit the Indian market and the retail business in India is sold to another bank. The rule of thumb is that if someone offers a rate much higher than market rate then most likely they are not getting enough business or there is a possibility of credit risk.
      Thanks

      Like

    2. I am not sure about long term interest rate trends. Over the next 1 yr yes, you can expect rate cut, but beyond that is a tough call. India is still a developing country with high inflation. The current low inflation may not last for too long. Once inflation flares up rates will have to be increased.

      Like

    3. The interest rates will systematically go down over next 2 years, it was not long ago when interest rates in India were 4-5%, so there is scope for a 2% cut to the base rate and that would not happen in one shot but progressive rate cuts of 25 – 50 bps over many quarters. Irrespective of inflation the interest rate cut is needed to boost growth as the cost of capital for doing business in India is too high right now.

      Like

    1. It depends on how the banks. If they have too much money in terms of deposits but very less demand for credit, then they will cut FD rates and it will impact NRE FD rates too. All indications are that Credit growth is very slow, with real estate in a mess and all the bad loans floating in banks. So yes, I expect NRE FD rates to be cut.

      Banks can cut rates even before RBI cuts, and RBI can also cut rates out of turn. So dont wait, if you are planning to make a big deposit.

      Like

    2. Yup!
      Thanks Nitin,
      However, my investment principal is generated from some property sale… The yield of which WILL take 3 months….
      I haven’t much choice but to wait it out for the entire sum to be invested.
      … Unless, I can negotiate at prevailing interest rates… I am unaware of the intricacies involved, frankly.
      Danfer.

      Like

  15. Aditya, that widget you have that shows the rates from different remittance providers is really cool!

    ICICI money2india seems to have increased their commission significantly to nearly 2%! I noticed the rates yesterday and today.

    Guys beware, ICICI seems to have decided to milk us.

    Like

    1. Thanks Nitin, I will try and add more providers as time permits. SBI has interestingly become very competitive.

      Like

  16. After yesterday’s FED decision, all currencies have risen against USD, in varying degrees. SGD seems to have risen more than INR. Now a rate cut by RBI looks imminent. SGDINR has crossed 49 today. May be the magic figure of 50 will happen in the next few days!

    Like

  17. Wow! That is a lot of money to convert in one shot. Are you sure you want to convert all that in one go, at this point in time, only to book NRE deposits of 1 yr? The kind of money you have you should the services of a private bank like DBS treasures and make some nice investments. The advantage of becoming a private bank client is you can get leverage at cheap rates.

    Like

    1. Yes, I understand where you’re coming from!
      However, I am a working professional. A meat and potatoes man. Just want to keep it simple!
      I don’t want to think too much about the investment. Just something relatively safe to put my money into.
      DS

      Like

  18. Hi Aditya!
    I need some specific advice on which banks are most recommended by you, for NRE FD deposits.
    Total amount around 625000 SGD.I feel the need to split it to 3 or maybe 4 different banks. Please advise…my shortlist is YES Bank ,Axis Bank, ICICI Bank and Kotak Mahindra Bank.
    Also ,what is the best mechanism to transfer the money to INR, at best exchange rates and minimum conversion charges.
    Regards!
    D.S.

    Like

    1. Just over a year… As required to avail the best interest rates… Around 7.9 %
      Most FDs are the same, however I need one frequently accessible savings account… For which YES bank undeniably gives the best saving account interest of 6%.

      Like

    2. Hi D. S.,

      I would recommend calling / emailing the shortlisted banks and asking for conversion rate if you open a large NRE Fd with them. I think that would be the best way to get a lowest margin conversion.

      The 4 banks are all good though personally I would skip Yes bank if possible and instead go with Standard Chartered that offers 7.95%.
      Standard chartered has a treasury department in Singapore which might mean that you get a better rate for transferring money in.

      You could split the amount 200k, 200k and 225k between 3 banks instead of 4 just from a logistics perspective. From return angle Kotak @ 7.90, SC @ 7.95 and Axis or ICICI @ 7.90 are all comparable.

      Hope this helps

      Like

    3. Hi Aditya!
      Indeed it helps a great deal. Thanks. However, my personal bias towards YES BANK being it’s particularly high Savings account interest of 6%which is unparalleled. My needs would make it imperative to have a savings account with a relatively high balance of about 50k SGD. This to have easy access to cash here in Singapore. Hence my favouring YES BANK.
      Also…. How are the AXIS bank online transfer rates? Can I use a single transfer mechanism for transferring money to different banks…. Or do I facilitate the transfers via each individual bank?
      I really am pretty clueless about the method of transfer… Sorry!
      D S

      Like

    4. Hi DS,

      Most online transfer service providing banks have similar rates give or take 10 paisa per dollar but given the large amount you have every paisa would count. You can use one transfer service to move money to different bank accounts, that’s not a problem, but I still think that with the large amount that you have the banks would happily offer you a better rate. So I would suggest approaching a relationship manager and tell them the amount you want to deposit with them and also tell them you expect a transfer rate no more than 0.4% of spread from the interbank rate. The relationship manager would work it out on your behalf as with a large amount like yours they might easily hit their monthly targets.

      The reason I am not in favor of yes bank is because they have the weakest balance sheet of the shortlisted banks. I would rather earn 2% less than put a large sum with a weak player. However in the end its your decision. Whatever works best for you

      Cheers

      Like

    5. Thanks… Most interesting!
      I will consider that seriously. Maybe I will use YES BANK only for an NRE Savings account for a smaller sum. I will pass on opening an NRE FD with them.
      I have tried SC, but find their customer service skills less than desirable!
      Also, thanks for clarification of the transfer service, understood the possibile advantage of negotiating with the individual bank for the best transfer rates rather than going with a common transfer service.
      Trurly appreciate your valuable advice!
      D S

      Like

    6. Hi D.S.,

      I have added a new feature to the site – a Live InterBank Rate feed and comparative rates of DBS, Money2India and Yes Remit. This will give users a good idea of the spread the banks have and the current market rate.

      cheers

      Like

    7. Hi Aditya…..
      Would the 0.91 commission imply that for sending 625,000 SGD I need to furnish commission amounting to 5687.5 SGD. To the bank??
      Danfer.

      Like

    8. Hi,

      That’s the built in commission in the rate that bank is offering. If you see the current interbank rate (the rate in the forex market) is 49.15, DBS is offering 48.66 which means that they are taking a cut of 1% over spot rate.
      Thats the reason having a relationship manager who can negotiate a better rate for you with the treasury would be beneficial for a large amount like yours.

      Like

    9. Hi Aditya!
      Built-in! Ah Ha! Now I comprehend the logic.
      So the commission is already factored into the offered rate…. Net rate.
      Thanks so much.. Again!!
      Forgive my ignorance in these matters… Ha ha.. I fly planes for a living!
      So fortunately or unfortunately, Yes bank appears to be on top!
      Regards
      Danfer

      Like

    10. Hi Danfer,

      It’s my pleasure to be of help, happy to answer any questions. So when you decide to make a transfer negotiate hard with the bank, you now have a ready reference of how much margin they have. Ofcourse no bank would transfer at spot rate but a 0.5% spread should be possible. That would translate to appx. 2500sgd savings for your amount.
      Cheers

      Like

  19. Issue was fully subscribed. As per NDTV this was subscribed by 11 am IST itself.

    Now option is to purchase it through market. Only issue would be the trading cost of the Bonds.

    Like

    1. The issue is of amount of Rs. 500
      crore (“base issue size”) with an option to retain oversubscription upto Rs. 1950 crore aggregating upto Rs. 2450 crore (“Tranche – II issue”). Historically the additional amount is retained. The current subscription in retail category is 731 crore which leaves room for another 500+ crores of subscription. So you have chance to still apply and get 100% allotment.

      Like

    1. Haha, I know I feel the same Aditya. Yes it’s great out here, but I do miss the sun!
      Couldn’t get to buying any sadly. However, I’m going to get myself a HDFC sec account open for future. Do we need a DEMAT and PIS account in addition to a trading account as well (in order to buy from the secondary market)? And is there a channel to subscribe to in order to stay updated about such issues in advance?

      Like

    2. Your trading account will come with the demat account so no need to worry about opening anything additional. I don’t see any more issues coming this year, but if there is anything that I see of interest will post on the blog 🙂

      Like

  20. Hello Aaditya, Hope all’s well!
    Gutted I’m reading this late. Very useful! Thanks
    However still a little bit clueless on how to go about this, don’t have online brokerage saving set up in India, all I have is the NRE savings account. Think there’s an alternative way to get your hands on these bonds? It’s likely that the brokerage account opening will take a lot of time

    Many thanks
    Aaditya

    Like

    1. Hi Aaditya,
      Hope Europe is treating you well. It’s funny to be addressing my own name ha ha…
      One option is to invest the money in your parents name if they have a online trading account. The issue still is not fully subscribed including the retention of oversubscription option. Otherwise maybe buy from secondary market on listing if the price is right. If buying from secondary Market try and look at other bonds like IREDA, NHAI etc also
      Cheers

      Like

  21. Thanks. Which platform you have used to make the application. Is there any upper limit to the application. Can a person make multiple applications ?

    Like

    1. I use Hdfc Securities, but any online provider with stock trading services would do – likes of ICICI direct, India infoline etc.
      A person can make more than one application but they will be aggregated. If the total application amount is greater than 10Lacs the interest rate would be 0.25% lesser. There is no upper limit to application and allotment is based on first come first serve basis

      Like

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