Question: I need to invest in Infrastructure Bonds for tax exemption purposes. Which one to choose? Please suggest.
The infrastructure bonds on offer are there with a limited open window period. Some like IDFC and L&T have already closed. IFCI is closing today. These bonds give you tax exemption under Sec 80CCF for investments upto Rs 20K.
An issue from IDFC is open from January 17 to February 4. Besides, IIFCL, PFC, REC and LIC are all expected to come up with similar bond issues shortly.
In other words, get whatever is available. All issuers will have sound financial to ensure safety/security for your money. And it’s just Rs 20K that we are talking about. Moreover since it’s going to be listed on exchanges, the yield would be roughly the same. No need to get a paralysis by analysis!! 
But you can make an informed choice between taking the buyback option or the cumulative one. For example, the IFCI bond come under two options – one offers an 8 per cent coupon rate with a buyback option after five years. The other offers 8.25 per cent returns without buyback.
Since the bond is expected to be listed on exchange and with monetary tightening expected to continue, the yield on 10-year government securities may be pushed upwards further, allowing infrastructure financing companies to price bond issues at higher rates.
So retaining a portion of their funds to take advantage of this situation can be a good idea.
Although the interest offered here is 25 basis points lower, this gives the flexibility to exit the investment if better rates are available after the five-year period.
Some people are smart. They don’t bother with the questions like what is infrastructure bonds, what’s Sec 80CCF and how/whys! They know they can outsource the grunt work to some bloggers who are out of their minds to be interested in such dull things and would be ready with answers!
Thankyou for asking smart questions. Hopefully the answer was helpful if not smart enough!
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If I apply for IDFC bond, will I get confirmation immediately Or like equity IPO I have to wait close date?? As my proof submission deadline is before 4feb 2010
Ramesh,
You can submit a copy of the acknowledgment which was stamped by the bank where you submitted the application. I did the same for IFCI bonds.
Rakesh
Therefore Ranjan, for the “financial-terms” challenged like me , for IDFC – do u suggest buy back or cummulative ? Also what term do u suggest?
I always wonder why is it called a buyback option. If the bond owner is getting an option, shouldn’t it be called a sell-back option
The 25 bps you give is the price of this option.
@KS Buyback wd be a better option. But if you do not know when to exercise that, it’s useless
@Smart Singh Haha…btw, u hv an awesome blog. Keep it up!
Thanks a lot Ranjan. That is encouraging, coming from an established blogger like you.
So Ranjan tell me which one would be better
IDFC LIC or IFCI as I do not have enough knowledge of this sector. And how a person can apply for a particular bond?
After how much time we can get a receiving for the bond to show in our IT department for tax exemption.
i want to buy idfc infrastructure bond shouid i buy in phsycialform or in demat form which one is better option.if in demat form how iwill be able to get benefit under80ccf
Hi.. I think if an investor already has a Demat A/C. or has been long thinking of getting it opened for Equity/IPO/FPO investments then he/she should definitely buy the bonds in the demat form as, if after 5 years of lock-in period, the bonds trade at a premium, then the investor can sell them on the excahnges & pay a lower Capital Gains tax instead of paying a tax on the interest portion. Moreover in the Demat A/C. there is no fear of loss of certificates as in the case of physical certificates.
For more info on Infrastructure Bonds or to invest in IDFC/REC Infra Bonds, you can Call/SMS: 9811797407
Which Infrastructure Bond to Buy for Sec 80CCF. IDFC Bond Tanche 2 for kotak securities is best or not best.
cool closing comment….thanks for sharing this information.
HI
I am very much new to these things and would like to now what is exactly infrastructure bond and how the system is working. I am interested to invest but need to understand it first.
Thanks, very useful post. Your expert advice is always appreciated. Keep up the good work!Nice blog. make sure i am visit again.
Might be a silly question…Do i need to pay 20000 /year for 10 years or only one time and can get tax exemption for next 10 years?
Please reply me
@Subeeth Tax exemption is for 1 year when you pay the amount.
Do i need to pay 20000 /year for 5 years or only one time and can get tax exemption
Hi Manivannan… you need to invest Rs. 20000 only once to claim tax exemption for FY 2011-12. If you want to claim exemption next year also (FY 2012-13), then you’ll have to invest Rs. 20000 next year again.
Sir,
Please guide me which Infrastructure bond can be taken from tomorrow. This is for tax exemption 80cc.
Hi a very nice blog.
Can you please help me in understanding how to make best use of the buy back option?
As Mr Ranjan mentioned if buy back option is not excercised at right time then it is useless. can you please explain this little more?
Regards,
Ashish
For Investing in Infrastructure Bonds & Application forms – Contact – Amit Surpuriya – 9850873688 – Pune
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