Business Daily from THE HINDU group of publications
Friday, Aug 10, 2007
ePaper
Business Daily from THE HINDU group of publications Friday, Aug 10, 2007 ePaper |
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Markets
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Investments Corporate - Corporate Bonds
Our Bureau Kolkata, Aug. 9 Talk of double-digit yield from fixed-income investments may well materialise, courtesy Nabard’s Bhavishya Nirman Bonds (BNB), which re-opened on Tuesday, August 7. The post-tax simple yield, at 12.82 per cent, is being seen as relatively attractive in the current circumstances, the comparable rate available on the fixed deposits front being 9.5 per cent or thereabouts. But first, a bit about the instrument. The Government has permitted Nabard to issue zero coupon bonds to raise Rs 10,000 crore. Each bond, carrying a tenure of 10 years, has a face value of Rs 20,000. Issue price
The issue price is set at Rs 8,250 per bond for investments of up to Rs 3 crore and Rs 8,200 per bond for investments above Rs 3 crore. The bonds will be listed on Bombay Stock Exchange (BSE) and investors will have the option of selling the bonds in lots of 50 in the secondary market. Rating agencies Crisil and Care have assigned AAA ratings to the bonds. While no tax will be deducted at source in terms of Section 194A(3) of Income Tax Act, the long-term maturity will allow the investor to plan for meeting his or her long-term expenses, according to a Nabard press note. Considering the yield, the response to the offer has been good, it is claimed. Yield
An investment of Rs 8,250 in a bond (which will mature to Rs 20,000) will provide a gross yield of Rs 11,750, which will attract a capital gains tax of Rs 1,175. This implies that the post-tax returns will be Rs 10,575. The simple yield, therefore, is 14.24 per cent, while the compounded yield is 9.26 per cent. Factoring in the tax, the post-tax simple yield comes to 12.82 per cent. This, Nabard has mentioned, will compare favourably with that of a fixed deposit — the rate offered by which may be 9.5 per cent. On a post-tax basis, this results in 6.9 per cent.
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