National Housing Bank (NHB) Issues Tax Free Bonds

National Housing Bank (NHB) is established under an act of parliament way back in 1988 as a principal agency to promote housing finance institutions in India. NHB is wholly owned by the Reserve Bank of India (RBI). The Central Board of Direct Taxes (CBDT) has issued a notification to NHB and has given a nod to raise funds by issuing tax free bonds from the markets. CBDT has given a nod of Rs 5000 crore for this fiscal to the bank. NHB plans to raise an aggregate amount of Rs 3750 crore from the market and the remaining amount of around Rs 1250 crore would be raised through a private placement route.

Our regular readers must be aware that there are many Tax free bonds issued in the markets and we have analysed all of them. Till now, we have said that the HUDCO Tax free bond issue is the best among the lot as it is giving highest coupon rate for a given tenure when compared to other existing issues. Let us look at NHB's tax free bond issue to see whether it has something special to offer or is it rather advisable to skip it.

Overall, we continue to believe that HUDCO's tax free bond issue is still an attractive option among the rest. If compared to this issue, HUDCO is offering a higher coupon rate of around 21 basis points for a similar kind of tenure of 10 years. We would once again like to tell investors that those who wish to keep these bonds for a longer horizon should only opt for such kind of issues. Investors falling in the higher tax bracket get the most benefit by investing in such kind of issues.