The National Highways Authority of India (NHAI) through its NHAI Infrastructure Trust (InviT) is offering non-convertible debentures with a yield of 8.05% and a tenure of 25 years, as per its prospectus filed with SEBI. the total size of the issue is 1,500 crores. The NCD issue will open on 17 October and close on 7 November 2022. Minimum application amount is 10,000. You can then apply in multiples of 1,000.
1. How much interest will the NCD pay?
The NCD will pay 7.9% interest semi-annually. Since this is a half-yearly (6 monthly) payment, the effective return is 8.05%. The mode of payment of interest or refund or redemption will be Direct Credit, NACH Mandate, RTGS, NEFT or Registered/Speed Post.
2. What are the ratings for NHAI NCDs?
The NCDs are rated AAA (Stable) by CARE Ratings and AAA by India Ratings and Research Pvt Ltd (Ind-Ra).
3. When will your principal amount be paid?
Generally, NCDs pay the principal amount at the end of the tenure. However this NCD is divided into 3 strips. NHAI will start repaying the principal on NCDs from the 8th year on the first line. Around 5% of the face value of the NCD will be repaid from the 8th year, with higher payouts in some years. NHAI has published a repayment schedule detailing the repayment timeline.
4. How will the interest be paid?
Interest will be paid half-yearly (twice a year).
5. How to Apply
You can apply for this issue through your stockbroker. Money will be blocked when you apply (Application is backed by Blocked Amount or ASBA Process) NCDs will be kept in your Demat Account. They will also be listed on NSE and BSE.
6. Is there a premature exit?
No, but you can sell NCDs on NSE or BSE if there is enough liquidity.
7. Is the interest taxable?
Yes. Interest is taxable at your slab rate.
8. Are there any tax benefits on investing in NCDs?
No. Unlike traditional Section 54 EC bonds, which are exempt from capital gains, there is no tax benefit on this particular issue of NCDs.
9. What about capital gains?
If you sell NCDs after a period of 1 year and make capital gains on them, they will be taxed at 10% (without index). For less than 1 year, capital gains are short-term and hence at the slab rate.
10. Should you invest?
NHAI NCDs are compared with FD rates which are currently in the range of 6-7%. This compares favorably with small savings rates. For example, a 5-year National Savings Certificate attracts an interest of 6.8%. However, the taxation of interest is not favourable. If you are in the 30% tax bracket, your post tax yield drops to 5.63%. Conversely, investing in a target maturity date mutual fund and withdrawing money from it after the holding period of 3 years will attract a more favorable tax rate. Long term capital gains on debt mutual funds are taxed at 20% and you also get the benefit of indexation. For example, Bharat Bond 2032 matures in 2032 and has a yield of maturity of 7.76%. If we assume the effective tax rate to be 10% (after applying the index), the return after tax becomes 7%. However, if you want a fixed interest every year and you don’t want the stress of mark-to-market gains or losses of debt mutual funds, then NHAI NCDs are a good option.
The principal managers of the issue are JM Financial Limited, AK Capital Services Limited, ICICI Securities Limited, SBI Capital Markets Limited and Trust Investment Advisors Private Limited.
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