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ICICI Bonds – A tax-saving opportunity - Views on News from Equitymaster
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  • Mar 15, 2001

    ICICI Bonds – A tax-saving opportunity

    Following the success of the safety bonds issue in February 2001, ICICI has decided to re-enter the market in March. Once again, the focus of the issue will be on offering investors a tax-saving instrument.

    The new issue of safety bonds will open on March 15, 2001 and is scheduled to close on March 31, 2001. This will be the seventh public offering under the umbrella prospectus approved by SEBI for 2000-2001 as per an ICICI release. ICICI’s Safety Bonds, (unsecured redeemable bonds in the nature of debentures), will aggregate Rs 4 bn with a green-shoe option to retain over-subscription of an equivalent amount.

    Unlike the previous issue, interest rates offered on these bonds are not very attractive, as interest rates on these bonds have been brought down by 50-100 basis points. This is in line with the lower interest rate regime signaled by the finance minister in the latest budget. Nevertheless, it is still an ideal instrument for investors with varying investment profiles.

    Like the earlier issues, this issue of Safety Bonds also has 5 different categories, with multiple options under each category. The minimum investment will still be Rs 5,000 per bond. The multiple options of the current issue along with different categories have been outlined below.

    • Tax Saving Bond –  The tax-saving bond offer tax benefits under Section 88 (rebate) with a yield of 20.7% to the investor under this option. The second option is deep discount bond with a yield of 18.5% to the investor. The tenures under this category are 3 years and 3 years, 4 months respectively.

    • Regular Income Bond –  The tenure for this bond is 5 years with a rate of interest of 9.5%, 9.75% and 10.0% payable monthly, half yearly and annually for the three options respectively. The yield to investor being 9.9%, 10.0% and 10.0% for the respective three options.

    • Money Multiplier Bond –  These are deep discount bonds with a yield to investor of 9.7% and 10.0% for the two options respectively. The tenure for the 1st option is 4 years, 4 months whereas under the 2nd option it is 7 years, 3 months.

    • Children Growth Bond –  This category of bonds is designed to take care of lump-sum expenditure like education and marriage requirements of children under two different options. Under the first option, the tenure is 16 years, 9 months whereas under the second option it is 21 years, 3 months. The yield to investor is 10.1% and 10.3% for the two options respectively.

    • Pension Bond –  This category has 3 options for tenures 11 years, 15 years and 18 years. The monthly pension will comprise interest and principal repayments in the form of annuity. There will however be no repayment of lump-sum principal at the time of maturity of the bond. The pension would be payable monthly after a waiting period of 1 year, 5 years and 8 years under the three options respectively, with the yield to the investor being 9.7%, 9.8% and 9.9% respectively.

    Investments in ICICI’s Safety Bonds enjoy benefits under section 88 of the IT Act giving investors a total yield of up to 20.7% per annum. Thus the safety bonds are a good tax-saving option for investors with an inclination for steady returns and a low risk appetite. Investors either retired or those who have fully invested in equity can also consider investing in it.

    Click here to download ICICI Safety Bonds



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