Fixed Income Special – Investment Ideas for Mar 2012 – Vol 2

1) Investing for 10% TAX FREE returns for 13 months:

In next 2-3 days, you will have an opportunity to invest for 10% tax free returns for just 13 months duration.

Please don’t miss this chance.

Fixed maturity plans are currently yielding around 9.5% to 10.5%.

If you buy a fixed maturity plan of 13 months tenure before March-31, 2012, you will be eligible for double indexation benefit. The plan will mature in April 2013. Since inflation is running at 6-7% rate, with double indexation, the probability of your return being taxed is almost nil. Indexation calculation uses 20% tax on the real return, adjusted for inflation.

What is the Catch ?
There is no liquidity for this FMP and you should only invest if you don’t need this money for next 13 months.


a) Why fixed maturity plans (FMPs) will fetch you more than Fixed Deposits ?

Please read this article from Economic Times for more details.

b) What funds are available to buy now ?
Get the list of FMP available for investment here. Bookmark this page.

You should invest in any FMP over 360 days to get the double indexation benefit.
If you miss the March-31, deadline, you can still invest in FMP, but you will lose double indexation and only single indexation would be available. You can still go after the yield if you wish after April 1st.

2) Post Office Savings Scheme interest rates are hiked from April 1, 2012
10-year National Savings Certificate, or NSC, will now yield 8.9% 5-year National Savings Certificate, or NSC, will now yield 8.6%
Public Provident Fund (PPF) will fetch 8.8%.
The savings rate will remain unchanged at 4%.
5 Year Monthly Income Scheme 8.5%

3) HUDCO Tax Free Bonds are available at discount price

HUDCO bonds got listed just a week back and they are available at a discount price well below its face value.
These bonds have par value of Rs.1000.
10 years HUDCO bond with coupon rate of 8.1% is available at a price of 980. 2% below issue price.
15 years HUDCO bond with coupon rate of 8.2% is available at a price of 960. 4% below issue price.
Both bonds are no with increased yield to maturity of 8.34% and 8.70% respectively.

The yield amount being tax free, it is very attractive to HNI clients. They are better than PPF in two ways.
(1) There is no upper limit on how much one can invest and (2) there is no lock in period, you can always sell these bonds in the open market.

4) TATA Capital NCD III and IV are under call option with a condition

Tata capital has sent out a letter by regular mail and also by email to all those NCD holders of N3 and N4 series.
These bonds are yielding 12% currently. The company has decided to exercise the call option and pull the bonds out.
Investors will be returned their principal with 12% interest. But if any of the investor are agreeable to lower yield of 10.5%, they can send their consent.

More details:

Tata Capital is good company. I recommend giving the consent for 10.5% yield. This is only for 2 years.
I expect these bonds to sell above par value. So, even if you need money, give the consent and sell it in secondary market.
And further if the interest rates start going down, the value of these bonds will go up. The holder can sell them for a profit.
Win-Win situation anyway.


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