Should you invest in PFC's Long-term Infrastructure Bonds?

n the Union Budget 2011-12, the Government retained the additional income tax benefit of 20,000 available under section 80CCF of the Income Tax Act, 1961 for investments made in long-term infrastructure bonds (as notified by the Central Government). This move is intended to provide a fillip to the infrastructure finance and provide an opportunity to individual tax payers to reduce their tax liability. In light of the same, Power Finance Corporation (PFC) Limited ("the issuer") is now offering Tranche - I of the long-term infrastructure bonds which are open for subscription from September 29, 2011 to November 4, 2011.

Before we assess whether the PFC bonds are really worthwhile investing, let's understand the key highlights once again:


What are these bonds named as?

These bonds are specifically named as "Long-term Infrastructure Bond".

Who would be the issuers of these bonds?

The bonds will be issued by the following entities:

Industrial Development Finance Company (IDFC)
Life Insurance Corporation of India (LIC)
Industrial Finance Corporation of India (PFC)
India infrastructure Finance Company Ltd. (IIFCL)
A Non-Banking Finance Company (NBFC) classified as an Infrastructure Finance Company by the Reserve Bank of India (RBI)

When will these bonds be issued?

These bonds will be issued in the financial year 2011-12 and the volume of issuance will be restricted to 25% of the incremental infrastructure investments made by the issuer during the fiscal year 2011-12.

What is the minimum tenure of these bonds?

These bonds will carry a minimum tenure of 10 years.

Is there a lock-in period while investing?

Yes, an investor is subject to a minimum lock-in period of 5 years while investing in these bonds.

How does one exit after the lock-in period?

After the lock-in period, the investor may exit either through the secondary market or through a buyback facility, as specified by the issuer in the offer document at the time of issue.

How would be the proceeds from these bonds used?

The proceeds from these bonds will be utilised for the purpose of infrastructure lending as defined by RBI (as per the guidelines issued by it).

Is interest earned on these bonds taxable?

Yes. The investor is liable to pay tax on the interest received.
The interest received on these bonds shall be treated as income from other sources and shall form part of the total income of the assessee in that financial year in which it is received. However no TDS shall be deducted on the interest received as these bonds if issued in Demat mode and listed on stock exchange.

Investors' will also have the following options available at the time of subscribing to the issue: