Prajna Capital

L&T Infra Bonds Tranche 1 - The issue closes for subscription on 24 December 2011
SBI MF launches debt fund - SBI Debt Fund Series-18 Months-9
Muthoot Finance Non Convertible Debentures (NCDs)
If mutual fund scheme is wound up, what happens to money invested?
Long Term Infra bonds are good to get extra tax break, but not beyond that......
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L&T Infra Bonds Tranche 1 - The issue closes for subscription on 24 December 2011

Posted: 21 Dec 2011 05:03 AM PST

Investors looking for tax-saving options under Section 80CCF have one more option: L&T Infrastructure Bonds. Infrastructure bonds were introduced in 2010 to give a boost to the infrastructure segment as well as provide an opportunity for individual tax payers to reduce their tax liability. Investors can invest up to . 20,000 in such bonds and avail of tax benefits. The issue closes for subscription on December 24.

The face value of each bond is . 1,000. Investors can apply for a minimum of five bonds and in multiples of one bond thereafter. Investors can subscribe to these bonds in either the physical or demat form. There are two series on offer. In Series 1, the interest rate is 9% payable annually, while in Series 2, the interest rate is 9% but compounded annually payable at the end of maturity. The maturity is 10 years from the deemed date of allotment. The bonds will be locked in for five years from the date of allotment. The issuer offeres bondholders three exit options: buybacks after five years, or seven years, and 10 years which is at the time of redemption. In addition, once the lock-in period of five years is over, the bonds shall be listed on the BSE.

An investment of . 20,000 would fetch a tax exemption of . 2,060 (if your tax rate is 10.3%), . 4,120 (if your tax rate is 20.6%) and . 6,180 (if your tax rate is 30.9%) maximum.

L&T Infrastructure Finance Company, the issuer of the bonds, boasts of a good pedigree. It is reflected in the credit ratings of 'CARE AA+' by CARE and '[ICRA] AA+' by ICRA, indicating high safety for timely servicing of debt obligations. Also, the tax benefit on . 20,000 per annum is in addition to the benefits available under sections 80C, 80CCC and 80CCD.

The bonds are locked in for five years. If you need funds in the interim period, you cannot even pledge or hypothecate these bonds, and there is no exit.

You can get the application form for L&T Infra Bonds below:

L&T Long Term Infrastructure Bond Tranche 1

SBI MF launches debt fund - SBI Debt Fund Series-18 Months-9

Posted: 21 Dec 2011 02:03 AM PST

SBI Mutual Fund has announced the launch of SBI Debt Fund Series-18 Months-9. The new fund offer (NFO) will be open for subscription from December 23.

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Muthoot Finance Non Convertible Debentures (NCDs)

Posted: 21 Dec 2011 01:28 AM PST

If mutual fund scheme is wound up, what happens to money invested?

Posted: 20 Dec 2011 10:05 PM PST

In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after adjustment of expenses. Unitholders are entitled to receive a report on winding up from the mutual funds which gives all necessary details.

Long Term Infra bonds are good to get extra tax break, but not beyond that......

Posted: 20 Dec 2011 08:52 AM PST

INVESTING in the equity markets is not an attractive option anymore for the average investor or even the biggest investors, who are failing to predict the way the market will move. Thankfully, there are a number of investment options that are available now, promising attractive returns for retail investors. There are two infrastructure bond issues that are open for investment at present, a non-convertible debenture (NCD) issue, which will be available for investment soon, and a number of interesting corporate fixed deposit schemes that one can choose from.

For an investor wanting to invest a sum of, say Rs 100,000 today, what would an investment in any of these instruments fetch in terms of returns. An analysis: Tax-saving infra bonds: The bond issues of IDFC and L&T Infrastructure Finance are open now for investors and offers an interest rate of 9 per cent. Both bonds come with a 10-year tenure and a lock-in period of five years after which the bonds could be traded on the stock exchanges. But why should one go for an infra bond offering 9 per cent returns, when there are many banks that offer 10 per cent interest rate on fixed deposits?

These tax saving infrastructure bonds also help the investor claim a tax exemption of Rs 2,060-6,180, depending on the tax slab of the investor.

Shortcomings: The tax benefit can be availed only for the first year of investment, despite the scheme having a minimum lock-in period of five years. Additionally, the tax benefit is available only up to an investment of Rs 20,000. Any investment above that would still fetch the same level of income tax For those in the 30 per cent tax bracket and have already exhausted the limit of Rs 100,000 under section 80C, it makes sense to invest Rs 20,000 in these bonds because it would result in savings of Rs 6,000.

Non-convertible debenture (NCD) issues

Many non-banking financial companies (NBFCs) like Muthoot Finance, Manappuram Finance and Shriram Transport Finance raised funds through NCD issues recently, offering attractive interest rates of 11.50-12 per cent. Muthooot Finance plans to soon hit the market with another round of NCD issue with an interest of more than 12 per cent and many NBFCs are also expected to follow.

Shortcomings: Though the returns are attractive, there is no tax benefit from investing in an NCD issue. Financial planners also advise investors to check the credentials of the companies and the ratings given by rating agencies for the issue, to ensure that the investment is safe.

Corporate fixed deposits

While banks offer interest rates of 9-10.50 per cent on fixed deposits, NBFCs and companies offer fixed deposit schemes with much higher interest rates. For in stance, Mahindra Finance promises an interest of 12.21 per cent (12.58 per cent for senior citizens) on fixed deposits with a five-year tenure.

Shortcomings: Fixed deposits, too, have no tax benefits. The investor should check the rating of the issue and study the past history of the company to ensure that the investment is safe, experts say.

Public Provident Fund (PPF)

After the maximum investment amount has been raised to Rs 100,000 and a higher post-tax returns of 8.6 per cent, PPF has become very attractive.

Being a government controlled instrument, it is absolutely secure.

The investments made in PPF are eligible for tax deduction under section 80C of an individual income tax return.

Shortcoming: PPFs have a minimum lock in period of 15 years. These are ideal instruments for a long-term investor.

Apply for L&T Long Term Infra Bond Application form L&T Long Term Infra Bond Application form

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Posted: 20 Dec 2011 07:46 AM PST

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