IRFC, HUDCO tax free bonds closing date entended, should you invest?

Investors could consider investing in the primary market issue of IRFC and HUDCO tax free bonds which have been extended till February 8 and February 1, 2012. The IRFC bonds are offering 7.68% for a 10 year bond and offering 7.84% for a 15 year bond. HUDCO bonds offer 7.84% for 10 years and 8.01% for 15 years. “Subsequent tax free bonds are likely to offer interest rates which are less by 20-25 basis points,” says Deepak Punjwani, Head (Debt Markets), GEPL Capital.

He expects he expects interest rates to fall by 50-75 basis points in the coming one year. Long tenure bonds are likely to appreciate more as compared to short tenure bonds, if interest rates fall. For example, a 1 basis points change in yield of a 15-year bond, could give you a capital appreciation of 8-10 paise. In comparison to this, a 1 basis points change in yield of a 10 year bond, could give you an appreciation of 5-6 paise. However risks to a rate cut remain. “If inflation continues to remain high, the central bank may not cut rates,” says Anup Bhaiya, MD and CEO, Money Honey Financial Services.