IIFCL offers tax-free secured redeemable non convertible bonds

IIFCL is offering tax-free secured redeemable non convertible bonds with an issue size of Rs 6331 crore. The issue is AAA rated by Care and ICRA. Investors can choose to apply in demat as well as physical form.

The face value of each bond is Rs 1,000 and one can make an investment for a minimum of five bonds and in multiples of one bond thereafter. Applications up to Rs 10 lakhs shall be considered in the retail category. The bonds are proposed to be listed on BSE.

The issue closes on March 15, 2013

The product

There are three series of bonds on offer, series 1 with tenure of 10 years, series 2 with tenure of 15 years and series 3 with a tenure of 20 years. In series 1, a retail investor shall get an interest of 7.36%., while in series 2, he will earn an interest of 7.52% and in series 3, he will be eligible for interest of 7.58%.

All other category of investors namely HNI, QIB and institutional investors will earn interest rate which is 50 basis points lower than that on offer for retail investors.

However, the differential rate for retail investors shall be applicable only to the original allottee. In the event, the original allottee sells these bonds; the subsequent allottee will get interest rates which other investors get.

Why invest

Since interest rates are expected to go down, it would make sense to lock in to these rates now for longer tenures. There is no put or call option in the issue.

Why not to invest

If you sell bonds in the secondary market, subsequent investors will get interest rates which are lower by 50 basis points. This could lead to lower liquidity for such bonds.