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The National Highways Authority of India Infrastructure Trust’s (NHAI InVIT) non-convertible debenture (NCD) issue, launched on October 17, was fully subscribed on the very first day. The company is likely to issue a 24-hour notice today and close the issue by October 19. This leaves a small window open for retail investors to invest, but you might at best get a partial allotment.
NHAI InVIT is an infrastructure investment trust sponsored by NHAI. It aims to raise Rs 1,500 crore through NCDs offered to both retail and institutional investors. NHAI aims to utilise this money to build roads and highways across India.
The bonds are meant for long-term allocation and come with an interest coupon of 7.9 percent per year. Does it make sense for the individual investor to add this to their long-term debt portfolio?
What’s to like
NHAI is a government of India entity and the funds raised will go into its core road building operations.
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Although NHAI is a government-backed company, the returns are not guaranteed. But being a AAA-rated firm lends comfort to those seeking a low-risk option with timely payment of interest and principal.
The debenture issue offers three options: the first one is redeemable from the end of the 8th year, the second from the end of the 13th year and the last one is redeemable from the end of the 18th year. Hence, you can choose to remain invested and make the most of a long-term, locked in interest rate.
The minimum investment required is Rs 10,000, with half-yearly interest payment, which is a good way to earn a regular income. The NCDs are secured and unlike some other long-term debt investment options, there is no upper limit on the investment amount. Hence, you can plan your allocation based on the regular income you desire.
At a coupon of 7.9 percent a year, pre-tax, the return is above the expected long-term inflation rate of 6 percent a year.
What’s not to like
It’s hard to visualise how interest rates will move over such a long period. Locking in returns now may mean you miss out on higher rates in the future. Also, the interest is taxable; this is not a tax-free bond.
This NCD is a bit different from typical NCDs we know of in the market. Take the case of its longest-tenured option, the 25-year option. The NCD will pay you interest, twice a year, for 18 years. From the 19th year, the NCD will start repaying the principal, but in instalments — Rs 50 a year for a Rs 1,000 bond.
The staggered redemption of the NCD means that your interest pay-out will be lower in absolute terms starting from the end of 18 years (see the table for the payment schedules of the other options).
Unlike a typical bond where you get paid the interest amount till the end of the tenure, and then you get your principal in a lump sum, the NHAI InVIT will start repaying the principal in instalments, along with interest on the remaining, unpaid principal.
“NHAI has very long-term projects and it wants to make sure that it doesn’t default on payments. It also wants to reduce its cost of capital, so it has chosen to repay the principal in instalments,” says Vikram Dalal, Founder and MD, Synergee Capital Services.
While the bonds will be listed on exchanges, liquidity, or how much they are traded on a daily basis, is likely to be low.
This means, if you are seeking an early exit via a secondary market sale, it may take some time to materialise.
What should you do?
Such a high quality issue can find a place in your long term debt portfolio if you are looking for regular income. You can receive a regular income of Rs 39,500 every six months on an investment of Rs 10 lakh.
According to Deepak Chhabria, CEO, Axiom Financial Services, “There is an appetite for good quality bonds, especially those issued by government-backed organisations. This particular issue can be of appeal to those who have a very long-term investment horizon. One has to be mindful of the taxes though. It makes more sense for those in the lower income tax bracket.”
If you wish to get a piece of this issue, make sure you subscribe today, October 18. But plan for a partial allotment as the issue has got over-subscribed already.
FAQs
Should you invest? The pros: The NHAI NCD compares favourably with FD rates which are currently in the 6-7% range. National Highways Infra Trust NCDs offer attractive interest rates where investors can get interest up to 7.9% per annum and yield works out to be 8.05%.
Should you invest in nhai bonds? ›
With their AAA credit rating, government backing, and tax-saving benefits, NHAI Bonds are an attractive investment option for those seeking secure and tax-efficient investments.
Is it safe to invest in NCD? ›
NCDs from one single sector (NBFCS that focuses on personal loans) are not safe to invest in. This can lead to higher risk exposure. NCDs from the secondary markets have always delivered higher returns in the past.
How to invest in InvIT NCD? ›
“The minimum investment amount has been kept low at Rs. 10,000, so that common man can participate in it. With that in mind, 25% of the NCD issue is being reserved for retail investors”, he informed. The coupon is 7.9% payable half yearly, which works out to 8.05% interest for the year.
What is the enterprise value of NHAI InvIT? ›
National Highways Infra Trust (NHIT), the infrastructure investment trust by the National Highways Authority of India (NHAI), has successfully concluded fund-raising through 'InvIT Round-3' for national highway stretches of aggregate length of 889km at an enterprise value of over ₹16,000 crore, which is the largest ...
Is it a good time to buy municipal bonds? ›
Because yields have recently improved among municipal bonds, investors no longer have to stretch for competitive income from lower-quality investments. And if valuations among municipals snap back as they have in the previous three decades, investors' source for competitive, total returns may also be closer to home.
Is it safe to invest in Indian government bonds? ›
Government bonds are a type of fixed-income security, allowing investors to earn consistent and regular income. Moreover, they can earn this income for a long period since most G-Secs have a maturity period of at least 5 years. Also, Government bonds are safest to invest among all classes of investment options.
Is NCD better than FD? ›
NCDs carry a higher risk than FDs, as their safety and returns depend on the issuer's creditworthiness. Before investing, it's essential to research the issuing company's credit rating and financial stability.
Which company is best for NCD? ›
Ncds Listing
| Issuer Name | LTP () | Action |
|---|
| Housing & Urban Development Corporation Ltd 7.19% FITCH AA+ | 1,078.00 | BUY SELL |
| ECL Finance Ltd 10.15% CRISIL AA/Stable | 1,002.00 | BUY SELL |
| Edelweiss Broking Ltd 9.16% CRISIL AA- / Negative | 979.00 | BUY SELL |
| Power Finance Corporation Ltd 7.15% CRISIL AAA/Stable | 982.00 | BUY SELL |
6 more rowsDisadvantages of Investing in NCDs. Companies with average or below-average credit ratings also issue NCDs. These have a higher risk of default and may not return the principal and interest accrued upon maturity. NCDs are debentures that cannot be converted to equity and thus, NCD investors cannot become shareholders.
Here are a few advantages: Stable Income: InvITs typically invest in stable, income-generating infrastructure assets such as toll roads, power transmission lines, or pipelines. It can provide you with a steady stream of income in the form of dividends as seen above.
When to buy NCD? ›
NCDs are initially issued by the company in the exchange and later traded in the secondary market. So, you can either choose to subscribe when a company announces NCD or buy later in the secondary market when it is trading.
What is the return of InvIT in India? ›
“In addition to portfolio diversification, InvITs can provide regular income to investors with some visibility on the indicative cash flows. Returns are in 8-10% range, and are currently yielding higher than traditional fixed income products,” said Satheesh Krishnamurthy, head – private Banking, Axis Bank.
What is the size of NHAI InvIT? ›
“With the completion of the third round of monetisation, the total realised value of all three rounds of InvIT stands at Rs 26,125 crore, and holds a diversified portfolio of fifteen operating toll roads with an aggregate length of about 1,525 km spread across the nine states of Assam, Gujarat, Karnataka, Madhya ...
What is the return rate of InvIT? ›
IRB InvIT Fund Stocks COMPARISON
| Financials( ₹ in Cr) | IRB InvIT Fund | India Grid Trust |
|---|
| Net Profit TTM ₹ Cr | 369.58 | 465.78 |
| PE TTM | 10.81 | 29.31 |
| 1 Year Return | -5.88 | -1.42 |
| ROCE | 4.51 | 7.02 |
5 more rowsFurther, Regulation 14(2)(c) mandates that the minimum investment in a privately placed InvIT shall be Rs 1 crore, however, if the InvIT holds more than 80% in completed and revenue generating assets, the minimum investment shall be Rs 25 crore.
Is National bonds a good investment? ›
National Bonds in the UAE offer a unique and strategic investment option for individuals looking to secure their financial future. With various products and services tailored to meet the needs of all income levels, National Bonds provides a flexible and rewarding way to save and invest.
Should you invest in capital gain bonds? ›
However, Section 54EC of the Income Tax Act allows a deduction of up to Rs 50 lakh from the profit if invested in capital gain bonds within six months from the day you sell your property. This means putting your money in such bonds can save you up to Rs 10 lakh on taxes (20 per cent of Rs 50 lakh).
Is it a good idea to buy government bonds? ›
Are Treasury bonds a good investment? Generally, yes, but that depends on your investing goals, your risk tolerance and your portfolio's makeup. With investing, in many cases, the higher the risk, the higher the potential return.
What is the interest rate of NHAI capital gains bonds? ›
These bonds offer savings on long-term capital gains from selling property if the investment is made within six months of the sale. The maximum investment limit for these bonds is Rs. 50,00,000 per financial year. Starting from April 1st, 2023, The interest rate on these bonds has increased to 5.25% per annum .
