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ICICI Safety Bonds: Not too different.

Sep 26, 2001

ICICI in a very short interval has come out with another infrastructure bond issue. This issue is not very different from the earlier issue, in the month of August 2001. The issue has five different plans:

  • Tax saving bond: Under this plan an investor gets tax benefit u/s.88. There are three options in this plan in which two options are in the form of deep discount bond. The first option gives a return of 9% p.a. and the interest is payable annually for 3 years wherein the yield to investor works out to 18.5%. The two deep discount bonds have different maturity periods - one is 40 months and the other is 78 months where the yield to maturity works out to 9% and 9.5% respectively. In all the three options the minimum investment is 1 bond i.e. Rs. 5000/- per bond.

  • Encash Bond: Under this plan an investor can withdraw his money anytime after 12 months. The minimum investment in this plan is 1 bond. However the interest income he will earn is 9% for 1 year, 9.25% for 2 years, 9.5% for 3years, 10% for 4 years, 10.5% for 5 years.

  • Regular Income Bond: There are four options under this plan. The interest on the first option is 9.25% p.a. payable monthly for a period of 5 years subject to a minimum subscription of 3 bonds. The second option pays an interest of 9.5% p.a. payable half yearly for 5 years subject to a minimum subscription of 2 bonds. The third option pays an interest of 9.75% p.a. payable annually for 5 years with a minimum subscription of 1 bond and the fourth option gives an interest of 9.5% p.a. payable annually for 3 years subject to a minimum subscription of 1 bond.

  • Money Multiplier Bond: These are in the form of deep discount bonds. Under this plan, in the first option Rs. 5,000 becomes Rs. 7,475/- in 53 months and Rs. 5,000/- doubles i.e. it becomes Rs. 10,000/- in 87 months the yield of the same works out to 9.5% and 10% respectively.

  • Children Growth Bond: These bonds are also in the form of deep discount bonds. Under the first option Rs. 5,000/- becomes Rs. 25,000/- in 16 years and 5 months and the yield works out to 10.3%. In the second option Rs. 5000/- becomes Rs. 40,000/- in 21 years the yield of the same works out to 10.4%.

From the five different plans, the two plans that are really attractive to investors are the Tax-saving Bond, which gives tax benefit u/s. 88, and the Encash Bond which gives the highest liquidity among all the five options. The current target of this issue is Rs 4 bn also with a right to an over-subscription of Rs 4 bn.

Given the delicate position at the moment, investors should not compromise on liquidity and must avoid illiquid instruments. That is the reason we recommend the Encash Bond, which is the most liquid. The Tax-saving Bond is purely for tax-planning purposes and has a 3-year lock-in.

If you are in Mumbai and are interested in ICICI Safety Bonds or other investment products, please register here

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