Investors are lapping up tax-free bonds. This is evident by the oversubscription of three recent tax-free bonds of National Highway Authority of India (NHAI), Indian Railway Finance Corporation (IRFC) and Rural Electrification Corporation (REC) on the very first day of launch. In fact, NHAI bonds were oversubscribed within a few hours of launch.
NHAI was looking to raise Rs. 1,000 crore with an option to retain oversubscription of 9,000 crore. The issue was oversubscribed within a few hours of launch. NHAI bonds offered an effective yield of 7.39% and 7.60% for the tenure of 10 and 15 years respectively.
Similarly, tax-free bonds of IRFC and REC too were oversubscribed within a few hours of launch. Both companies have collectively mopped up Rs.5,300 crore. While IRFC offered a tax-free yield of 7.50%, REC offered an effective yield of 7.43% for 20-year tenure.
There could be a number of reasons behind this overwhelming response to tax free bonds - attractive yield for individuals falling under high tax bracket, no new issuances of tax free bonds since FY 2013-14 and downgrading of a few corporate papers.
A few more tax-free bonds of Housing and Urban Development Corporation (HUDCO) and Indian Renewable Energy Development Agency (IREDA) are likely to hit the market in the current financial year.
