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POSTED BY ON January 1, 2012 5:07 pm COMMENTS (7)
I have recently moved out of India with a job. I got my PF and Gratuity earning from my Indian employment. I like to know what are the good option to put them in secure long term instrument. I am considering 15 years PFC bond and 10 years NSC. Is there any better instruments. I am not considering any mutual fund as I don’t want any risk out of this investment. Suggest me any good option.
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Dear Santchak, in the light of the info that you moved out recently & you have time on your side to become NRI, The 10Y FD of SBI @ 9.25% is the best option for you. I assume in future years your Indian income ‘ll remain zero from all other sources, hence the interest earned from these SBI FDs ‘ll be available for set off against the basic zero tax limit of 1.8L Rs. at present & for future slabs as & when notified by Govt. of India.
Please do note, once you are NRI, you can’t file form 15G to get zero TDS status. Yes you have the option to update your PAN with the bank so that TDS ‘ll remain 10.3%.
Thanks
Ashal
Ashal,, I thought about the NRI angle. As I said I have just moved out of India hence I guess I need some time to attain NRI status. The money that I got as a resident Indian and will file income tax for this year in India. In this financial year I have 8 months of Indian income already.
Dear Abhishek, like NSC, you can’t invest in PPF also being a NRI.
Thanks
Ashal
Dear Santchak11, In my view you may invest in these 15Y PFC Bonds. the reason is simple – the long term for you want to invest in, the related risk is lower. Sooner or later reforms ‘ll be there in power sector also & this ‘ll help in the over all performance of power sector & ultimately the co. in question – PFC.
There is more to it – the 10Y NSC is taxable where as these PFC bonds are tax free. hence the real return from NSC ‘ll be lower than these PFC bonds.
Last but the most important point, being NRI, you are not eligible for NSC investment.
Thanks
Ashal
PFC and NHAI Bonds are great choices. You can also exhaust the PPF limit of 1 lakh.
10 Year Fixed deposits from SBI is also a good option.
Regards
Lump sum investment in PFC is understandable considering the 8.3 per cent annual payout it offers. However, the PFC bond is risky because despite secured lending with low non-performing assets (NPA), the huge accumulated losses and high debt levels of the power distribution sector and shortage of fuel for power generation are key concerns for stakeholders in power sector including PFC.
The risk of payment defaults by the State electricity boards to generation projects is also rising. The respective State governments are supporting the distribution companies in near term. Over the long term, distribution sector reforms such as revising tariffs annually and reducing transmission and distribution losses are expected to improve the financial standing of these electricity boards and reduce the counterparty risk for its borrowers.
These risks do not apply to the assured return government of India backed 10-year NSC which is now available.
Narayan
Thanks, Narayan for your valued thoughts on PFC bonds.