What is Infrastructure Bond

What is Bond?
If you have purchased a BOND from LIC, that means you have given loan to LIC.
What is Infrastructure bond?
If the loan amount received from you is used by the company for Infrastructure development, then it is called as Infrastructure bond.
Infrastructure bonds are the Government bonds having highest security.

Why to Purchase Infrastructure Bonds?
It is mainly for Income Tax Benefits. Over and above Rs.1 lakh in 80C, you can save upto 20 thousand rupees in Infrastructure bonds under 80CCF

Where to purchase Infrastructure Bonds?
You can contact any Mutual Fund Advisors. There are lot of licensed share brokers for this purpose.

3. Whether you need a demat account to purchase Infrastructure Bonds?
No. Demat account is not necessary. But if you have demat account you can purchase the Infrastructure Bonds online. Otherwise you have to purchase offline.

Which companies are issuing Infrastructure bonds?
1.Industrial Finance Corporation of India (IFCI),
2. Infrastructure Development Finance Company (IDFC) and
3. Non-Banking Finance Company (NBFCs) who are classified as an infrastructure finance company by the Reserve Bank of India (RBI)
4. Life Insurance Corporation of India (LIC)

What is the minimum amount for which I should purchase this infrastructure bonds?
Normally it is in multiples of Rs. 5000. For example, you can purchase for Rs.5000 or for Rs.10,000 or for Rs.15000 or for Rs.20,000

What are the items required for getting these infrastructure bonds?
If you have a demat account, you can the infrastructure bond online
Else
Go to one of the offices listed in the application form along with the following:
1. PAN Card
2. Residence Proof
3. A cancelled cheque leaf
4. A cheque for the amount of the bond.



What is your advice? Whether I should invest in Infrastructure bond or not?
It depends mostly on which incometax slab you are in. There are three types of slabs 10% (for less than 5 Lac), 20% slab (for 5 to 8 lac) and 30% slab (for above 8 lac taxable income). If you are in 10% slab, then by investing Rs.20,000 on infrastructure bond, you will save Rs. 2000. But your Rs.20000 will be locked for , say 5 years. But if you are in 30% slab, then by investing Rs.20,000, you will save Rs. 6000 from income tax. Note: You will get about 8% interest on your investment of Rs.20000.

About the LIC infrastructure bonds:
• Term: 10 years
• Minimum lock in period: 5 years
• Loan on Bond: After 5 years
• Interest Rate: 7.85%-7.95% after tax.
• Exit options: Buy back or through Demat account
• Open for Individual or HUF.
About IFCI bond (an example):
Issuer IFCI Limited ("the Issuer")
Offering 2,00,000 Unsecured, Redeemable, Non-Convertible Bonds of Rs. 5,000/- each aggregating to Rs. 100 Crore with a green-shoe option to retain over-subscription for issuance of additional Infrastructure Bonds
Type Private Placement basis
Instrument Unsecured, Redeemable, Non-Convertible Bonds Series II having benefits under section 80 CCF of the Income Tax, 1961 for long term Infrastructure Bonds
Rating BWR AA- by BRICKWORK RATINGS INDIA PVT LIMITED
Eligible Investors Resident Indian Individual (Major) and HUF through Karta of the HUF
Security Unsecured
Face Value Rs. 5,000/- per bond
Issue Price At par (Rs. 5,000/- per bond)
Minimum Subscription 1 Bond and in multiples of 1 Bond thereafter,
Tenure 10 years, with or without buyback option after five years
Options for Subscription The Bonds are offered under the following 4 options-
• Option I - Non-cumulative and Buyback after 5 years
• Option II - Cumulative and Buyback after 5 years
• Option III - Non-cumulative and no Buyback
• Option IV - Cumulative and no Buyback
Redemption / Maturity At par at the end of 10 years from the deemed date of allotment. For Cumulative Option, at par with cumulated interest thereon.
Coupon rate • Option I & II - 8% p.a.
• Option III & IV - 8.25% p.a.
Option II and Option IV will have cumulative payment at the end of the Buyback period or 10 years, as per the option opted by the Investor.
Listing Proposed to be listed on BSE
Trustee Axis Trustee Services Limited
Depository National Securities Depository Ltd. and Central Depository Services (India) Ltd.
Registrars Beetal Financial & Computer Services (P) Ltd.
Mode of Payment Interest payment will be made through ECS/At Par Cheques/Demand Drafts
Issuance Demat form. But, investors interested for physical form may provide a cancelled cheque, self-certified copies of PAN Card and residential proof
Trading Demat mode only following expiry of lock-in period
Issue Open Date November 16, 2010
Issue Close Date December 31, 2010
• The issuer would have the right to pre-close the issue or extend the closing date by giving 1 day notice to the Arrangers
Deemed Date of Allotment January 31, 2011
Buyback dates January 31 every year commencing from year 2016 till year 2020.