It is a public issue by Indian Railway Finance Corporation (IRFC) of tax-free, secured, redeemable, non-convertible bonds of face value of Rs 1,000 each for an amount aggregating up to Rs 8,886 crore in one or more tranches in the financial year 2013. The fund raised through this issue will be utilised by the company towards financing the acquisition of rolling stock that will be leased to the ministry of railways. A apart of the fund raised will also be utilised for funding projects approved by the ministry of railways and executed by Rail Vikas Nigam.

 

The issue is open from January 21 to January 29.

 

The bonds are being issued under two series. For retail investors, investing up to Rs 10 lakh, series I, which has a tenure of 10 years, has a coupon rate of 7.68 per cent, while series II, having a tenure of 15 years, provides a coupon rate of 7.84 per cent.

Retail investors investing above Rs 10 lakh will get 0.5 per cent less in both the series.

 

 Interest on these bonds will be tax-free. While you will have to mention it as a part of your total income in your income-tax returns, you will be entitled to subtract it from your total income as an allowed exemption. No tax deducted at source will be applicable on the interest. No tax benefit is available for the principal amount of the investment in these bonds.

 

 IRFC tax free bonds have received AAA/Stable rating by rating agency Crisil and AAA by ICRA and CARE.

The fact that interest earned is not taxable is a compelling proposition for investing in these bonds. Its a very large issue of Rs 8,886 crore in a very crowded tax-free bond issuances that kicked off last year with Rural Electrification Corporation (REC) issue, followed by PFC, IIFCL, and Hudco. There are limited issuances remaining in the pipeline in the financial year ending March. In a scenario where RBI is likely to bring down interest rate, these bonds will see an appreciation in their traded prices on the stock exchanges. However, liquidity is very poor in the trading of such bonds and investors should not bank on being able to sell them before 10-year or 15-year maturity. This long period is also a deterrent if you do not want to lock in your investments for the entire duration of the long tenure.