The National Highways Authority of India (NHAI) plans to raise Rs 10,000 crore as per the draft document filed with the Securities and Exchange Board of India (SEBI), for public issue of taxable, secured redeemable non-convertible bonds.
The National Highways Authority of India (NHAI) plans to raise Rs 10,000 crore as per the draft document filed with the Securities and Exchange Board of India (SEBI), for public issue of taxable, secured redeemable non-convertible bonds. Proceeds of the issue will be utilized to finance its various projects including the Bharatmala Pariyojana. These Bharatmala bonds are to offer 8.50-9 per cent interest across various tenors, including 3, 5, and 10-year maturities.
The interest rates, however, are similar to those being offered by many non-banking financial companies (NBFCs). For instance, Bajaj Finance for its new customers is currently offering 8.75 per cent on their 1-5 year fixed deposits (FDs). State Bank of India, on the other hand, is offering an interest rate of 6.85 per cent for a 5-10-year FD.
As an investor where should you lock in your money, with similar interest rates being offered by the NHAI bonds, NCDs and FDs of NBFCs and banks?
According to experts, investors must consider factors such as safety, liquidity, and post-tax returns even though the interest rates offered by the NBFCs and NHAI bonds are quite comparable. If investors prefer NHAI bonds over NBFC FDs regarding safety, they may have to compromise on the liquidity during the duration of the bonds, as the secondary market might not provide the desired level of liquidity.
There is no lock-in period in the case of NHAI bonds, and investors can sell these bonds in the secondary market after allotment. Nevertheless, based on the demands for these bonds in the secondary market and interest rate movement, the market price of these bonds fluctuates. In the case of FDs of NBFCs, investors can prematurely withdraw money by paying a penalty in the form of a lower interest rate, although they have a mandatory lock-in period of three months.
Says Anil Rego, founder & CEO, Right Horizons: “Investors should always consider investing in high-quality corporate bonds with the rating of ‘AAA’ and ‘AA+’ and maturing in three to five years.” The bonds issued by the NHAI are ‘AAA’-rated bonds, which are considered to be highly stable and secure. However, as the NHAI are typically long-term deposits, with tenors of up to 10 years, investors with a shorter tenure should take that into account before deciding. The NBFCs, on the other hand, typically have 1-5 year tenors for FDs.
Although the interest earned on the NHAI bonds is liable to income-tax (I-T) based on the I-T slabs of the investor, in case of capital gains from the NHAI bonds, the amount of gains is exempted from capital gains tax. In comparison, the interest earned on FDs is fully taxable in the hands of investors.
In case of the NHAI bonds, no tax will be deducted at source, unlike FDs where if the interest earned is more than Rs 5,000, tax deducted at source is charged at 10 per cent. However, if bonds are sold in the secondary market after one year, capital gains will be taxed at 10 per cent (without any indexation benefit).
Experts suggest, as the NHAI bonds are quasi-sovereign bonds with 8.5–9 per cent interest across various tenors, it would be a better bet for investors looking for a safer option, without compromising on the returns. However, other than the interest rate, investors need to look at different factors, such as the investment period, the liquidity, their risk appetite, while taking a decision.