L&T Infra Long-term Infrastructure Bonds

#1
Hi All,

I am looking at investing L&T Infrastructure bonds which is to be listed again on Feb 7th 2011. Is it worth investing, if i am not investing for tax saving.?

I did a small calculation like with the offering

Initial Amount Rs. 10000
Interest 8.30%
Period 10yrs.
Ending Amount : 22196.50

And with Kisan Vikas Pathra.

it's Rs. 10000 with 8.7yrs it's double.

Am i doing anything wrong in calculation.?.

If not it looks like Kisan VIkas Pathra is far better and safe option then L&T.

Can you guys advice me on this.

-Dinakaran.AS
 

asterix24

Active Member
#2
Hi Dinakaran,

You need to look at an additional aspect of your tax savings you incur due to your investment into the Infrastructure Bonds.

With KVP, if money doubles in 8yrs 7 months (103 months), the interest rate roughly works around to 8.25% compounded half-yearly. With this interest rate and compounding frequency, you will get Rs. 22,444 at the end of 10 years.

Coming to L&T Infrabonds, as you have rightly pointed out, one would get Rs. 22,196.50 at the end of 10 years. However, you do get tax exemption currently and the same should be accounted as an additional interest. Please note that for KVP, the exemption is under your standard Sec80 C 1 Lakh exemption, but for infrastructure bonds, it is over and above this 1 Lakh limit.

Assuming you fall into the taxable category, following would be your gains

10% Tax Bracket: Returns = 22196.50 + 1030 = 23226.50
20% Tax Bracket: Returns = 22196.50 + 2060 = 24256.50
30% Tax Bracket: Returns = 22196.50 + 3090 = 25286.50

Please note that all the above figures are for an investment of Rs. 10,000 and includes the savings from IT and Education Cess.

From this you can observe that the returns from Infrastructure bonds is relatively higher and you can take a judicious call.

Happy Investing !!
 

Similar threads

Zerodha – Open Paperless Account

Open online account with Zerodha. Free delivery trading and Max Rs 20 for Intraday, F&O, Currency and Commodity Trading. Intraday High leverage with MIS, CO and BO.

Name:Phone:
Email:City:
State:
Are you a day trader?