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Fixed Income

Railway Bonds at 7.25% Tax Free!

From the Times:

The finance ministry on Monday approved issue of bonds by railways worth Rs 5,000 crore for the financial year ending March 31, 2010.

The bonds will be issued by Indian Railway Finance Corporation (IRFC), which will be tax-free, secured, redeemable and non-convertible, carrying an interest rate in the range of 6.5% to 7.25% per annum. The bonds will be available in the form of public issue.

Hat Tip: @b50

I couldn’t find any information on the IRFC site though their earlier bond issues are listed, at 4 to 8.5%.

Risk: IRFC is not explicitly guaranteed, though a risk transfer agreement shifts capital raising requirements to the Ministry of Railways. Technically that could still mean a risk (unless you hear “explicit guarantee”, there isn’t one). But it is less risky than bank deposits, for sure.

A tax-free rate of 7.25% is greater than 10% pre-tax; this is the equivalent of a 10% fixed deposit, but your money is locked for 10 years or so. 

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