Edelweiss Nifty PSU Bond plus SDL Index Fund

During the last decade, retail and corporate investors were very comfortable in investing in Fixed maturity Plans (FMP). FMP had a clear earning visibility, and it was giving better Post Tax return as compared to available options in Fixed Income Securities. 

Post IL&FS, Franklin closure of their 6 debt plans and couple of defaults in corporate sectors, investor are scared and apprehensive to invest in close ended plans. 

Above plan of Edelweiss gives safety, liquidity (Being Open ended) and better post Tax yield. Other open ended debt funds like Medium to Long Duration Fund, Dynamic Bond Fund, Gilt Fund etc.. charges high fund management fees, which ranges from 0.50 -2.15%. Whereas this fund has 0.30% fund management charges. 

At present five year Tax Free Bonds are quoting at 4.25%, whereas post Tax return in this plan will be 5.90%. (after considering capital gain, indexation, Cess and surcharge) 

The plan will invest 50% in SDL (State Development Loan) having Sovereign rating and balance 50% in Central PSE carrying AAA rated Bonds. Exposure to any single Central PSE bond or SDL would be capped at 15% of the corpus. 

The plan will mature on April 20, 2026, thus the selection of underlying securities will have tenure matching with the maturity of the plan. 

We will suggest this fund for retail and corporate investors, who are into high Income Tax Bracket (i.e 25% and above). Post RBI Policy and Union Budget the market is anticipating hike in interest rate. Thus any instrument with long term maturity will give below lower return. Above plan has medium term maturity as underlying securities. 

Bond yield has hardened in last fortnight

Yields on Ten year GOI security bond has gone up by 25 basis points after Union Budget and RBI policy announcement (Yield and price are inversely related). There is a trust deficit among market participants, and they need more assurance from RBI and Finance Ministry. The inflation has started rising and planned budget deficit will be 6.80% of GDP for FY 2021-22. Bond market is expecting higher borrowing by RBI on behalf of Central & State Government. Thus all the AAA rated Central PSE or Private sector bond yields have gone up by 40-50 basis points.

Security Name Rating IP Dates Maturity Date Face Value YTM
7.15% PFC 2036 Secured AAA By CRISIL & ICRA 22 Jan Annual 22-Jan-36 1000 7.19%
6.85% IRFC 2040 AAA By CRISIL & ICRA 15 Oct Annual 29-Oct-40 10 Lakhs 7.15%
6.94% NHAI 2036 AAA By CRISIL & ICRA 30 Dec Annual 30-Dec-36 10 Lakhs 7.11%
7.00% PFC 2031 Secured AAA By CRISIL & ICRA 22 Jan Annual 22-Jan-31 1000 7.04%


Tax Free Bonds are quoting at 3.80 – 4.40% depending upon the maturity of the security. The yield has remained at the same level, despite the spike in the yield of 10 year GOI Security. It is observed that the yield will harden as and when the banks starts offering higher rate on their Fixed Deposits. SBI and HDFC Banks are offering 4.50 – 6.00% rate on their FD’s. Thus Post Tax return works out to 3.48% for Ultra HNI investors who are into 42% Tax Bracket. As there are no new issuances announced in the Union Budget (2021-22), Tax Free Bonds are in demand among Ultra HNI investors.

Security Coupon Interest Payment Date Maturity Offer (YTM) Rating
IRFC TFB 8.35% 15th April Annual 27-Nov-23 3.80% CRISIL AAA
NTPC TFB 8.41% 16th Dec Annual 16-Dec-23 3.80% CRISIL AAA
NHAI TFB 8.30% 1st Oct Annual 25-Jan-27 4.40% CRISIL AAA
IRFC TFB 8.10% 23rd Feb Annual 23-Feb-27 4.40% CRISIL AAA
NHB TFB 8.93% 24th Mar Annual 24-Mar-29 4.40% CRISIL AAA


Retail investor who is into 0-30% Income Tax Bracket, it is prudent to invest in AAA rated Central PSE NCD’s or Private Sector Taxable Bonds.


Published on 24th Feb 2021


Forthcoming private placement issues – Fixed Income Securities

In present scenario investors are scouting for higher yield/interest on their investment in Fixed Income Securities. Above two instruments are offering higher interest rate and are available at par. Both the instruments are not secured, but considering the past track record of the management one can consider part allocation in this securities.

Name of the Issuer Hinduja Leyland Finance Ltd Tata Motors Finance Ltd
Interest Rate 9.75% 9.55%
Nature of Security Sub Debt Unsecured Perpetual (Tier I & II)
Rating AA- CRISIL/ICRA A ICRA (Negative)
Call option N.A 1st March 2031
Maturity 18th July 2026 Perpetual
Interest Payment Date 18th February Annual 1st March Annual
Date of Issue 18th February 2021 1st March 2021
Face Value per Bond Rs. 10 Lakhs Rs. 10 Lakhs
Our offer Price Rs. 10 Lakhs (At Face Value) Rs. 10 Lakhs (At Face Value)
Nature of Holding In Demat form only In Demat form only



Fixed Income Services

Fixed Income Services

Debt Market Intermediation

  • Broking and Trading in all Debt Instruments like G-Sec., SDLs, PSU Bonds, CPs, etc
  • Structured Deals in conjunction with the Investment Banking Team
  • Knowledge Sharing through Market Analysis.
  • Distribution of Primary Bonds to the retail and wholesale market.
Preference Shares

Preference Shares

What is Preference Shares ?
Preference shares are securities issued by a company that do not carry any voting rights like ordinary shares. However, they entitle their holders to a fixed dividend and have a fixed maturity, after which the company redeems the principal. Holders of preference shares get priority over those who own ordinary shares, if the company goes for Liquidation.


Listing, liquidity and voting Rights

SEBI has recently allowed listing of non-convertible redeemable preference shares, that is, those that are not convertible into equity shares and are redeemed at maturity. Listing will give investors the option of exiting rather than waiting for the instrument to mature. As the shares are listed on the exchanges and an STT is levied on the transaction. Thus any sell beyond one year will be treated as long term, and there is no long term capital gain Tax on Shares.

Preference shares are not very popular due to lack of knowledge among the investors and the small size of the issuances. SEBI has mandated a rating of AA- and above and a minimum of three-year tenure for listing.

Preference shares do not carry voting rights. Companies, too, may pay dividend only when they earn a profit. In the cumulative option, if the company does not pay dividend in one year, the holder has the right to the payment in the next year, before any dividend is distributed to Equity Shares.

Quasi Debt instrument

Preference shares are quasi-debt instruments. Preference shares combine features of equity and debt. They carry equity risk as the principal is not secured. Also, they entitle holders to a dividend similar to fixed deposit interest and have a set tenure.Preference shares are offered as part of share capital. The company pays fixed dividend to their holders. In this, they are unlike ordinary shares, where dividend is not fixed. Dividend income up to Rs.10 lakhs is tax-free in the hands of an investor. Dividend income more than Rs.10 lakhs will be taxed at 10%.

Comparison of Preference Shares vs NCDS vs Tax Free Bonds

An investor usually compare Preference Shares with non-convertible debentures, or NCDs, which also pay a fixed rate, besides protecting the principal (unlike preference shares), as well as tax-free bonds, which are long-term but protect both principal and interest. In the worst case scenario of liquidation, holders of preference shares are put below NCD holders in terms of claim on assets.

Hence, dividend on preference shares is higher than what one earns from NCDs and tax-free bonds. But a lot will depend on the rating of preference shares. So, while investing in preference shares, one should look for tax arbitrage along with the risk. Interest income from NCDs is taxed while dividend income from preference shares is tax fee up to a Dividend income of Rs. 10 Lakhs. On the other side, interest from tax-free bonds is not taxed.

Tax-free bonds' tenure usually exceeds 10 years. On the other hand, while listing will make preference shares more liquid, they also have the advantage of being redeemed by the issuing company. Also, holders of preference shares are in some cases given preferential allotment during issue of shares.

In the above chart we are presuming that the Dividend income of an investor will be less then Rs.10 lakhs per annum.

Quality Check

Before investing in preference shares one should look at the company's past profitability and dividend payouts and how it plans to use the funds from the issue. The credibility and reputation of the management is also equally important. Credit rating of the company will help an investor to understand what kind of company he is investing in and whether it will grow in size and popularity.



Detailed List Of Preference Shares
L & T Finance Holdings LTD IL & FS Transportation Networks Tata Capital Ltd
IL & FS LTD TVS Motor Services Limited ZEE Enterprises LTD
Deep Discount Bonds

Deep Discount Bonds

A coupon is an interest guarantee attached to a debt instrument; the coupon rate is the interest rate, which the holder of that debt instrument will receive. As the name suggests, zero-coupon bonds have no coupon rate i.e. there is no interest to be paid out. Instead these bonds are issued at a discount to their face value (Simply put, in a fixed income instrument, the face value represents the par value/nominal value; it is the amount payable to the holder of the instrument on maturity). The difference between the discounted issue price and face value is effectively, the interest that investor earns. For example, if the face value of a zero coupon bond is Rs 1,000 and its issue price is Rs 900, then the difference between the two i.e. Rs 100 is the return for investor (i.e. 10 per cent rate of return).



A 10 Year BhavishyaNirman Bonds of National Bank for Agriculture and Rural Development (NABARD), Rural Electrification Corporation (REC) and National Housing Bank (NHB) are being issued as long term investment instrument, under Sections 2 (47)& 2(48) of Income Tax Act, 1961. All the above three institutions are Central Government Undertaking withAAA rating.

Nature of Holding

The bonds can be held in both physical as well as in dematerialised (demat) form.

Tax implications

In terms of tax implication, the maturity proceeds from these bonds attract no tax deduction at source. Instead, the said income i.e. difference between face value/purchase price and issue price, will be treated as capital gains and capital gains tax will be payable by the investor. At present the Long Term Capital Tax is 10% without indexation and 20% with indexation.

High Liquidity

These bonds are transferable and can be mortgaged. Therefore, in case, the investors require liquidity for a temporary period, the bonds may be pledged with the Banks for raising loans. The bonds can also be sold in the secondary Bond Market with the help of an intermediary/Broker. The Bonds are highly liquid due to following reasons. 1. All the three institutions are Central Government Undertakings 2. Tax efficiency (The gain will be treated as Long Term Capital Gain instead of interest income) 3. “AAA” rating by CRISIL and CARE.


Detailed List Of DDB
Tax Free Bonds

Tax Free Bonds

What are tax-free bonds
These bonds are mostly issued by Central government entities and pay a fixed coupon rate (interest rate). As the proceeds from the bonds are invested in infrastructure projects, they have a long-term maturity of typically 10, 15 or 20 years. There is no upper limit on the size of the investment.



What are tax-free bonds

These bonds are mostly issued by Central government enterprises and pay a fixed coupon rate (interest rate). As the proceeds from the bonds are invested in infrastructure projects, they have a long-term maturity of typically 10, 15 or 20 years. There is no upper limit on the investment amount.

Tax benefits

The income by way of interest on these Bonds is fully exempt from Income Tax and shall not form part of Total Income as per provisions under section 10 (15) (iv) (h) of I.T. Act, 1961.As the interest income is Tax Free, there is no deduction of tax at source (TDS) from the interest, which accrues to the bondholders.

Interest rate

The coupon (interest) rates of tax-free bonds are linked to the prevailing rates of government securities. So these bonds become attractive when the interest rates in the financial system are high. In some of the issuances, retail Individual Investors (Individual & HUF) get higher interest rates. The advantage of higher interest rate can be availed, even if an Individual investor invest through secondary bond market.

Interest payment

The interest on these bonds is paid annually and in some issuances it is semi-annual and credited directly in the bank account of the investor.

Credit risk

Since tax-free bonds are mostly issued by central government-backed companies, the credit risk or risk of non-repayment is very low.

Nature of Holding

The investor can hold the bonds either in demator in a physical mode. It is preferable to hold the bonds in a demat form, for convenience and ease of trade.

Secondary market

The tax-free bonds get listed and then traded on the secondary Bond Market to offer an exit route to the investors. The quote on the exchange will be a summation of : Face Value +/- Premium/discount + Accrued interest.Investors can buy and sell these tax free bonds to take advantage of interest rate cycle. Though the interest earned on these bonds is tax-free, but any capital gain from sale in the secondary market is taxable. Short-term capital gains from sale of tax-free bonds on exchanges are taxed at the normal rate, while long-term capital gains are taxed at 10% without indexation and 20% with indexation, whichever is lower. By indexing, you adjust the purchasing price with annual inflation.

Who should invest

Tax-free bonds are suitable for investors looking for a steady source of income annually . Generally an investor, who is into higher Tax bracket of 20% and above should invest in these instrument.

Additional Tax Benefit

These bonds however, do not provide any additional tax benefits. (Investment in these bonds will not have Tax benefit under Sec 54EC)

Tax free bonds vs bank fixed deposits (FDs)

The interest earned on bank FDs and other normal bonds are added to the income of the investor and taxed as per the income-tax slabs. As interest earned from tax-free bonds are not taxed, investors in higher tax brackets mostly earn a better post-tax return than from FDs. Majority of the bonds are secured in nature. Whereas the Bank FD is not secured beyond Rs.1,00,000 (One lakh).

Buying/Selling of Tax Free Bonds

We offer the service of Buying and selling of Tax free Bonds in secondary Debt Market. Please feel free to call on our office for two way quotes.


Detailed List Of Tax Free Bonds
IIFCL Tax Free Bonds IRFC Tax Free Bonds IREDA Tax Free Bonds Jawaharlal Nehru Port Trust
Karnataka Water and Sanitation Pooled Fund Trust NHB Tax Free Bonds NHPC Tax Free Bonds NTPC Tax Free
NABARD Tax Free NHAI Tax Free Bonds PFC Tax Free Bonds REC Tax Free Bonds
Water & Sanitation Pooled Fund

NHPC Tax Free BondsNTPC Tax Free NABARD Tax FreeNHAI Tax Free BondsPFC Tax Free BondsREC Tax Free BondsWater & Sanitation Pooled Fund