nikhil shah

The following is a guest post from reader Nikhil Shah and deals with the intricacies of investing in the soon to close investment opportunity in PFC’s Tax Free Bond Issue along with the income tax angle. Nikhil’s analysis also contains a very interesting perspective on how you can plan for major financial goals through this investment route. A couple of weeks back, Nikhil had also put-up a detailed analysis of NHAI’s Tax Free Bond Issue.

Since I’ve already provided some background information to these tax free bond issues, this time we’ll go straight to the calculations and analysis which you can download from the link below:

Click here to download calculations and analysis for the PFC Tax Free Bond Issue (courtesy Nikhil Shah).

Please let me know if you have any questions by leaving a comment to this post. I will respond to your queries at the earliest.

Disclaimer:

All views and opinions are my own and have no relation whatsoever with any person or firm. The information provided is just for guidance. It may not be absolutely or technically correct. The information could easily be dated. Always check with Fund Company/Brokerage/Financial Advisor/other relevant institution for the correct information. Information provided on this Blog/Web Site is for informational purpose only. It is the reader’s responsibility to ascertain the facts, conditions and risk factors. All investments are subject to market risks. Read all scheme related documents carefully before investing. You are advised to consult your financial advisor before taking any investment decision. Read the prospectus before investing in these bonds.

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The following is a guest post from reader Nikhil Shah and deals with the intricacies of investing in the soon to close investment opportunity in NHAI’s Tax Free Bond Issue along with the income tax angle. Nikhil’s analysis also contains a very interesting perspective on how you can plan for major financial goals through this investment route. A couple of weeks back, Nikhil had also put-up a detailed analysis of L&T’s Infrastructure Bond issue.

The Central Board for Direct Taxes (CBDT) has allowed four firms to raise up to Rs 30,000 crore through the issue of Tax Free Bonds in FY 2011-2012. The National Highways Authority of India (NHAI; an autonomous authority of the Govt. of India under the Ministry of Road Transport and Highways (MoRTH) constituted on Jun 15, 1985) and the Indian Railway Finance Corporation (IRFC) have each been allowed to raise up to Rs 10,000 crore. The Housing and Urban Development Corporation (HUDCO) and Power Finance Corporation (PFC) are allowed to raise up to Rs 5,000 crore each. Tax free bonds means that the interest earned from these bonds is exempt from income tax and is therefore not considered while computing one’s total income.

The Rs 10,000 crore National Highways Authority of India bond offering which opened for subscription on December 28, 2011 offers a good opportunity for investors to lock-in funds at higher yields and earn tax-free interest income.

40% of the Rs 10,000 crore issue is earmarked for institutional investors while another 30% is earmarked for retail investors and high net worth individuals. The bonds will have differential coupon rates of 8.2% for 10-years and 8.3% for 15-years. The NHAI issue presents a good opportunity for investors to lock money in “AAA”-rated sovereign-like bonds at higher yields. Apart from high coupon rates and safety, these bonds will be very liquid because of the large float. Investors will easily be able to buy and sell these bonds on the exchange.

An 8% tax-free coupon rate is very much comparable to an investment product that delivers 12% pre-tax returns. This issuance is even better than bank fixed deposits which are currently giving about 9% pre-tax returns. Also, with interest rates expected to slide over the next few months, these bonds can generate higher returns by giving you an option to sell these bonds at a relatively higher coupon rate.

I’ve prepared detailed calculations and analysis which you can download from the link below:

Click here to download calculations and analysis for the NHAI Tax Free Bond Issue (courtesy Nikhil Shah).

There are six sheets containing the following information:

  • Sheet #1 shows Present Value to Future Value computations.

  • Sheet #2 shows computation of pre-tax yield for Individuals & HUF and also for Banks & Corporates.

  • Sheet #3 shows some useful calculations and tools.

  • Sheet #4 shows how much to invest to get desired amount.

  • Sheet #5 shows Child Education Expenses Planning via Tax Free Bonds

  • Sheet #6 shows Retirement Expenses Planning via Tax Free Bonds.

For additional information about this bond issue, please download the FAQ from the link below:

Click here to download FAQs for the NHAI Tax Free Bond Issue (courtesy Nikhil Shah).

Disclaimer [from Nikhil]:

All views and opinions are my own and have no relation whatsoever with any person or firm. The information provided is just for guidance. It may not be absolutely or technically correct. The information could easily be dated. Always check with Fund Company/Brokerage/Financial Advisor/other relevant institution for the correct information. Information provided on this Blog/Web Site is for informational purpose only. It is the reader’s responsibility to ascertain the facts, conditions and risk factors. All investments are subject to market risks. Read all scheme related documents carefully before investing. You are advised to consult your financial advisor before taking any investment decision. Read the prospectus before investing in these bonds.

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The following is a guest post from reader Nikhil Shah and deals with the intricacies of investing in the soon to close investment opportunity in L&T’s Infrastructure Bond issue along with the income tax angle. Earlier this year, Nikhil had also put-up a detailed analysis of the previous L&T bond issue.

Dear All,

The year is coming to an end and it’s time to plan and invest for saving your income tax. Apart from your regular tax saving instruments eligible for deductions of up to Rs 1 lakh, there are long-term infrastructure bonds in the market. These infrastructure bonds are debt instruments wherein an investment up to Rs 20,000 is eligible for individual income tax benefits under section 80CCF.

The yields on Government Securities have been on a downturn in the recent past. Currently the 10 year G-sec is trading at around 8.31% which is 57 bps (basis points) lower than the October closing which was 8.88%. In other words, INFLATION is going down.

So you are requested to please grab this wonderful opportunity and invest in L&T Infra Bond issue which is currently running and closes on 24-Dec-2011. I’ve also created an investment analysis calculator which you can download from the link below.

Link:

Click to download a detailed analysis of L & T Infra Bonds.

Regards,

Nikhil Shah

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Asked and Answered: February, 2011

by Vinaya HS on February 25, 2011

in Finance

Here’s what was asked and answered by Capital Advisor in February, 2011. If you have a question on managing your personal finances, send me an email and I’ll respond at the earliest. If your question’s beneficial to a wider audience, I’ll publish it in a future edition of “Asked and Answered,” without revealing your personal details.



Query #1: On continuing a guaranteed-return life insurance policy.

I have a question regarding my TATA AIG Maha Life Gold life insurance policy. For a sum assured of Rs 400,000, I am paying Rs 35,000 as annual premium for 10 years. After the 6th year, which is this year, the policy gives me a small cash dividend of around 2%. After the 10th year, a guaranteed annual coupon of 5% that is Rs 20,000 would be paid to me. I am not sure if its good to discontinue this policy at this point of time. Please suggest.

I ran the numbers on this situation — you can download my analysis here — and the results were quite shocking. (Note: The sheet doesn’t consider the paltry cash dividend. Even if it did, the results would still be shocking.) And as I told the reader, “if you play around with the Excel sheet, you’ll find that all TATA AIG needs to do is park your money in a FD and they’d still make money off you! But since you’re already in the 6th year (and I don’t find a surrender option), I guess you have no choice but to continue this policy.”

I then ran the numbers on a similar policy from Bharti AXA called Bharti AXA Aajeevan Anand — you can download my analysis here — and the results were equally shocking.

I’d stay away from such policies. In my opinion, the minimum guaranteed coupon should be equal to the current risk-free rate of return, but then that wouldn’t make business sense to the life insurance company, would it?

Just put those premiums in a Fixed Deposit and you’d do far far better.



Query #2: On the New Pension Scheme.

Could you review the New Pension Scheme (NPS)? I want to invest in a Pension Plan without being taken for a ride.

In my opinion, most Pension Plans, these days, take you for a ride — so much so that sometimes I wonder who the pension is for: you or the insurance company.

While I have a general sense of the NPS, I’m not intimately familiar with its structure and working. Therefore, I pointed the reader to a recent article on NPS in ET Wealth for further information.

Personally, though, when it comes to financial instruments, the NPS isn’t on my radar.



Query #3: On infrastructure bonds.

Have you analyzed the Infrastructure Bonds from IDFC and L&T?

I haven’t. But reader Nikhil Shah was kind enough to share his detailed analysis of these infrastructure bonds some time back.

(Note: Follow me on Twitter, and you’ll have advance access to these downloads.)

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