IDFC bonds-- Do apply.

IDFC ( Infrastructure development finance corporation) has recently come out with tax saving bonds. One can apply to these bonds till the 22nd of October.

I was actually a little bit surprised at the number of television advertisements that came out on this bond, and even more with the fact that they were quite creative. I especially like the one where a guy stops his friend from spitting on the road ( yes, we still do that here in India) because it was his highway and he had invested in the IDFC bonds.

But personally i think it is a good idea to apply to these bonds. The reasons are as follows.

1. These bonds give you tax savings over and above the Rs 100,000 limit on tax saving in 80C to another Rs 20,000. So , if you invest and if you are in the top most bracket of 30%, this is a cool saving of Rs 6000.
2. The coupon rate is 7.5% which when you get back the income earned on it is taxable.
3. This will sit in your demat account, which is good since you dont need to keep some paper safely for 10 yrs!
4. There are two options- five years and ten years. The coupon rates are a little different though.


Lets do a little calculation

lets assume that you are investing 20,000 Rs for a period of 10 yrs. Which means that you are now saving Rs 6000 Rs . which is 600 Rs over each yr for the next 10 yrs.
The interest income yearly ( non cumulative) is 7.5% which translates to 1500 Rs/ year . Hence the overall saving that you get is 2100 Rs ( 1500+ 600) which is pre tax rate of 10.5%.

This means that your post tax rate is actually at 10.5% *( 1-30%)= 7.35% which is actually quite a good 100% gaurenteed risk free rate of return.

Makes sense to invest in this as long as you get the tax benefit , which is upto a maximum investment of Rs 20,000. If you invest more than that then the post tax rate drops to 5.25% which is quite low.


So  go ahead make the investment into these bonds on the following conditions.

1. You have maxed out the 80C limit of Rs 100,000

2. You want debt in your portolio

3. Upto a maximum of Rs 20,000

You will need a demat account to apply for these bonds , as well as a PAN no. ( else how will you claim the tax benefit?). Most of the banks are accepting these bonds - i know i have gotten emails from Citibank as well as HDFC. I am sure they are being paid some good brokerage fees on this!

Go ahead, Make the investment!

Happy Investing

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