PFC tax free Bonds oversubscribed in a couple of hours

MUMBAI: The second issue of tax free bonds this financial year, from PFC of Rs 700 crore, has been oversubscribed in the first couple of hours itself. Of the total issue size, 40% is reserved for retail investors who invest up to Rs 10 lakh, with the balance being offered to HNIs, QIBs and corporates.

As per data available till 11.10 am, the retail category which had on offer bonds worth Rs 280 crore had mobilized Rs 715 crore, resulting in an oversubscription of 2.55 times.

Retail investors will get 7.36% for a 10-year bond, 7.52% for a 15-year bond and 7.60% for a 20-year bond. The coupon offered to retail investors is 25 basis points higher than what is offered to other categories of investors. The PFC bond issue is likely to be followed by the likes of REC, IREDA, NHAI, IRFC and HUDCO, later in this financial year.

Wealth managers believe these bonds work well for investors who are in the high-tax bracket.For example, an SBI fixed deposit pays a maximum of 7.75%. So, if you are in the highest tax bracket (30.9%), your effective tax yield is 5.35%. Compared to this, a tax-free bond gives you 7.60%.

"After the RBI cut rates by 50 basis points last week, investors are rushing to lock into these high interest bonds,” says Anup Bhaiya, MD and CEO, Money Honey Financial Services. Due to oversubscription, retail investors will get full allotment for the bonds they applied for. All retail investors who applied on the first day will get allotment on a proportionate basis.