NHAI Tax Free Bonds got listed today
National Highway Authority of India (NHAI) tax free bonds got listed on a bumper note today as per market expectations.
They are currently trading at the price of around 1028 (Series: 8.2%) and 1036 (Series II: 8.3%). It gives investors 2.8-3.6% returns in 34 days resulting in an annualised pre-tax return of around 33-43%. At the current market price of 1028 (Series I), the current yield on the 10 year bond after listing gains is around 7.78%. This is a tax free rate resulting in a pre-tax yield for the highest tax bracket (30.9%) investor at 11.26% while for the 20% tax bracket it is at 9.80%. Therefore, for 20% tax bracket investors, it makes sense to book profit in NHAI bonds and invest in options like Fixed Deposits (FD) , short term debt mutual funds , etc while an investor in the 30% tax bracket should remain invested.
The issue was oversubscribed in the HNI and QIB category on the first day itself. NHAI proposed to issue Rs 5000 crore but ended up raising Rs 10,000 crore with a greenshoe option as it got oversubscribed to the extent of Rs 25000 crore.
Since we are near the peak of the interest rate cycle, these bonds could see further capital appreciation once rates start falling. Therefore, investors should continue to hold these bonds at current levels also, as apart from a tax free yield of 7.78% (pre-tax: 11.26%), there is the possibility of further capital gains once the RBI start cutting rates. Being a long-term government backed bond, it also reduces re-investment risk once system interest rates come down and deserves to be a part of the fixed income portfolio. Currently, the five year and above FD interest rates are around 9.5-10%. Therefore, for investors in the highest tax bracket, NHAI bonds should be preferred over FDs. Also, because of the large issue size of Rs 10000 crore and high institutional interest, liquidity is also likely to remain better as compared to any other bonds. Therefore, they should be able to transact without much transaction cost in future also.
Source: moneycontrol.comhttps://www.investmentkit.com/articles/2012/02/nhai-tax-free-bonds-got-listed-today/https://www.investmentkit.com/articles/wp-content/uploads/2012/02/nhai-logo1.jpghttps://www.investmentkit.com/articles/wp-content/uploads/2012/02/nhai-logo1-150x114.jpgTaxesAuto,Draft,fixed income portfolio,interest rate cycle,investor,issue,national highway authority of india,NHAI,nhai bonds,tax,tax free bonds,yieldNational Highway Authority of India (NHAI) tax free bonds got listed on a bumper note today as per market expectations.They are currently trading at the price of around 1028 (Series: 8.2%) and 1036 (Series II: 8.3%). It gives investors 2.8-3.6% returns in 34 days resulting in an annualised pre-tax...Admin[email protected]AdministratorInvestmentKit Articles
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