HUDCO Tax Free Bonds: Review, Analysis & Calculation for HUDCO Bonds 2012: Finance Trading Times

HUDCO Tax Free Bonds: Review, Analysis & Calculation for HUDCO Bonds 2012

The Housing and Urban Development Corporation (HUDCO) is expecting to raise more around 4685 Crore Rs. (including over-subscription option) through tax saving bond issue
Yesterday we covered about a similar issue from Indian Railways Finance Corp Bonds: IRFC Tax Free Bonds, and this tax free bonds issue from HUDCO is exactly similar in nature - offering long term investment with tax benefits.
Let's see some basic details of these HUDCO Tax Saving Bonds first:

Calculations for effective returns from HUDCO Tax Saving Bonds

What is the actual instrument being offered in the name of HUDCO Bonds for Tax Savings HUDCO Logo (Image courtesy: HUDCO official site)
The issue offered by HUDCO are Tax Free Secured Redeemable Non Convertible Bonds in the nature of Debentures but offering tax benefits under section
10(15) (iv) (h) of the Income Tax Act, 1961.

Also see Related NHAI Tax Free Bonds issue and
currently open similar offering from Indian Railways : IRFC Tax Free Bonds

What is the business and function of HUDCO?
HUDCO or Housing and Urban Development Corporation is the finacial arm under Government of India. Its main function is to provide and finance the required capital to development housing projects, financing housing schemes, community facilities and related infrastructure services.

HUDCO Tax Free Bonds 2012

What are the opening and closing dates for HUDCO Bonds for Tax Savings
The HUDCO Tax Saving Bond issue opens on January 27, 2012, and closes on February 6, 2012.

What are the tax benefits avaialble for investors in the HUDCO Bonds for Tax Savings
The income earned as interest from the HUDCO tax saving bonds is fully exempted from income tax.
No TDS will be deducted by the issuer while paying the interest.
There is no Wealth Tax levied on investment in Bond under section 2(ea) of the Wealth-tax Act, 1957

What is the issue size of HUDCO Bonds for Tax Savings
The issue constitutes of Rs. 2000 Crores with an option of extending it to another 2,685 Crores taking the total to 4,685 Crores in case of over-subscription.

Are the HUDCO Bonds for Tax Savings available only in demat form?
Both demat and physical paper form applications can be made for HUDCO tax saving bonds - however, trading of these bonds will happen only in demat forms. Hence, physical form will be better for investors who are looking only for long term investment and hold rather than trading.

What are the investment details about HUDCO Bonds for Tax Savings?
Each HUDCO Bond will cost Rs. 1,000 each (face value) and one needs to apply for atleast 10 bonds meaning the minimum application amount comes to Rs. 10,000. Above that, the investors need to apply in multiples of 5 bonds.
The bonds come in two series (I and II) -
Interest rates offered on annual basis are as follows:
- 8.10% for Tranche-I Series 1 Bonds and
- 8.20% for Tranche-I Series 2 Bonds

However, if one applies for amount more than 5 Lakhs, he can earn another extra 0.12% p.a. and 0.15% p.a. on series 1 and series 2 respectively.
The interest rates appear to be better than those offered by similar issue from IRFC (See IRFC Tax Free Bonds)

What are the credit ratings assigned to HUDCO Bonds for Tax Savings
CARE has assigned "CARE AA+" by CARE to tranche 1 bond series and "FITCH AA+ (ind)" by FITCH.
All these indicate good stable outlook.

Where will the HUDCO Bonds for Tax Savings be listed?
The HUDCO bonds will be listed both on BSE and NSE.

What are the effective returns available on HUDCO Bonds for Tax Savings considering the tax free interest?
HUDCO bonds are offering an effective post-tax returns of about 12% - please note that this is for individuals in the highest 30% tax bracket.

What are the other options available for tax savings to investors other than HUDCO Bonds for Tax Savings
The investors can invest in Long Term Infrastructure bonds which are currently open:
1) IDFC Infrastructure Bonds for Tax Saving
2) L&T Infra Bonds for Tax Saving
3) SREI Infra Bonds for Tax Saving

How can one apply for HUDCO Tax saving bonds?
Interested investors can apply through the BRLM sites and possibly also through the trading portals.

How will the capital collected by HUDCO Tax saving bonds be used by HUDCO?
As per the prospectus, the capital raised will be used for further business activity expansion and financing requirements.

Final Thoughts about HUDCO Bonds for Tax Savings?
HUDCO is backed by the government. Hence, the the stability and credit of these bonds can be considered to be stable.
Investors looking for tax savings options with shorter maturity can apply for these HUDCO bonds.
Enam Securities Private Limited and SBI Capital Markets Ltd are the Book Running Lead Managers. SBICAP Trustee Company is the Trustee
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