What are Infrastructure Bonds?
The government of India awards infrastructure status to certain projects that are of national importance. Infrastructure projects are usually undertaken by PSU entities such as IDFC, PFC, etc. with L & T being the exception. Capital for these projects is raised through infra bonds. The minimum investment ticket is Rs. 5,000 and there is no upper limit.
What are their features?
Security:
Like all bonds, these bonds have credit ratings. As the government vets these bonds, they typically have the highest credit rating. The issues may or may not be secured (i.e. backed by assets).
Taxation:
Investments in infrastructure bonds can be used to claim deductions under Section 80 C. The interest earned on the bonds is taxable.
Tenor:
Infra bonds are long-term bonds where the tenor is 10 to 15 years. The bonds are callable after the lock-in period. This means that the issuer can recall or buy back the bonds once the lock-in period is over.
Liquidity:
Infra bonds are locked in for five or seven years depending on the tenor (ten or fifteen years). However, they are exchange-traded and can be sold after the lock-in period. It might still prove difficult to liquidate the bonds as there is low market participation.
Who are they meant for?
Infra bonds are meant for investors looking to park their money in a secure avenue. Currently, there are no new issues. Returns are close to those of government securities with similar maturities. Since there are other instruments offering higher return under Section 80 C, it may not make sense to invest in infrastructure bonds solely for the tax benefit.
