It looks like a problem of plenty. But if you have to choose only one, the Infrastructure Bond in IDBI Flexibonds 3 is the best bet as it offers a wider range of tax exemptions and retains the priority of allotment of the bonds issue.Though the financial institution has hiked the coupon rates in its Regular Income (RI) Bond and Growing Interest Rate (GIR) Bond, these two options will face stiff competition from bank deposits and UTI's assured income scheme, MIP 98(1). The other option in Flexibonds 3, IDBI Deep Discount Bond, is non-lucrative in itself.
Before the Rs 750-crore IDBI Flexibonds 3 offer opened for public subscription, the Reserve Bank of India (RBI) came in to mop up excess liquidity from banks to stave off speculative pressures on the rupee. Banks, in turn, raised their interest rates on deposits across-the-board to replenish the dried-up liquidity with fresh deposits. And this has brought the IDBI Flexibonds 3 issue on the mat. At least two instruments of the retail bond issue now standto lose a large chunk of small investors to bank term deposits and to the Unit trust of India's (UTI) Monthly Income Plan 98(1) scheduled.
Sure, IDBI felt the heat. Taking clues from its last two private placement offers under Omnibonds series -- the last one of which was on offer in January itself, and from the lead managers of the current public issue, IDBI revised the coupon rates upwards in two of the four instruments offered under Flexibonds 3, namely IDBI Regular Income Bond and IDBI Growing Interest Rate Bond. The coupon rates were increased by 0.25 per cent and 0.50 per cent, respectively.
After the revision, the annual interest rates in IDBI Growing Interest Bond are 11 per cent, 11.5 per cent, 13 per cent, 15.5 per cent and 18 per cent respectively for the first, second, third, fourth and fifth year. The new interest rates for monthly or yearly payable interest options under the IDBI Regular Income Bond are 12.5 per cent and 13.25 per cent respectively.
Undoubtedly, the revision make-up hasmade these two instruments more charming than before. Even the stock market investors can now have a look at these instruments for more secured yet gainful investment of their surplus, particularly when the stock market is still reeling under the bear pressure.
But the allotment of bonds under these two options is limited by the fact that the applicants for IDBI Infrastructure Bond will get the priority of allotment and the applicants for other bonds will come up next.
A wise investor should, however, consider among other things a comparative study of returns offered through other alternatives available in the market.
Bonds, bearing almost no risk, are high-yielding security instruments with regular returns. At the same time, being a negotiable instrument, it also ensure liquidity.
Now consider the comparative returns aspect. IDBI Regular Income Bond and IDBI Growing Interest Rate Bond are set to face competition from the LIC Mutual Fund's (LICMF) assured income scheme, Dhanavarsha-11 and UTI'sassured income scheme MIP 98(1). Dhanavarsha-11, currently on the offer, assures an annual return of 11.8 per cent if payable monthly and 12.5 per cent if payable yearly. It is a five-year close-ended scheme redeemable at the net asset value after five years. MIP 98(1) is also a close-ended redeemable scheme but has a lock-in period of first three years. It, however, offers a higher annual return of 12.5 per cent if payable monthly and 13.24 per cent if payable yearly. A comparison suggests that IDBI Regular Income Bond offers almost the same rates of returns as MIP 98(1) and the returns in these two options are higher than that in Dhanavarsha-11. But while MIP 98(1) has a three-year lock-in period, IDBI Regular Income Bond retains the liquidity being a negotiable instrument.
Prima facie, IDBI Growing Interest Bond looks attractive as it offers growing interest rates. But a close look reveals that comparative benefit to returns occurs to the Growing Interest Bond investor only in the fifth year. Totalreturns after the first four years will be greater in both MIP 98(1) and IDBI Regular Income Bond. However, IDBI Growing Interest Rate Bond gives an early exit option at the end of each year.
Nevertheless, with the credit rating of AAA from CARE and CRISIL, investors can look forward to safe options in the form of IDBI Flexibonds 3 till February 18.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
