Tips to save IPO listing gains tax!
In the years 2023 and 2024, many IPOs brought huge earnings for the investors. But tax also has to be paid on this! What is the tax rule on booking listing gains from IPO? How can tax liability on listing gains be reduced? How will the tax be calculated on selling IPO shares?
IndiGrid, an infrastructure investment trust, has come up with the public issue of non-convertible debentures (NCDs) for up to Rs 1000 crore with an effective yield in the range of 6.75% to 8.21%. The issue is open from 28th April 2021 and will close on 5th May 2021. The minimum application amount is Rs 10,000 and an investor can hold it in demat form only.
IndiGrid is the first listed power sector infrastructure investment trust (InvIT) and is sponsored by KKR group and Sterlite Power. The base size of the issue is Rs 100 crore, with an option to retain oversubscription up to Rs 900 crores.
Rating and Features
This issue has been rated ‘AAA/Stable’ by Crisil and ‘AAA/Stable’ by India Ratings, which is the highest rating for an investment instrument. The NCD is available for a tenure of 3, 5, 7, 10 years. It has a yearly interest payment with an option of quarterly payments for the tenure of 7 years and 10 years. Moreover, interest income from the NCD is fully taxable as per the individual tax slab.
Payout
| Indigrid NCD | |
| Duration | Coupon |
| 3 year | 6.75% |
| 5 years | 7.6% |
| 7 years | 7.90% |
| 10 years | 8.21% |
Should you invest in IndiGrid’s NCD?
When bank interest rates are significantly down, the NCD offers 8.21% interest per annum. Should you invest in it? Given that the sector is facing headwinds experts say there have been instances where even AAA-rated issues like this, have troubled investors in terms of timely payments. Also, the power sector is prone to government interventions through its policies and distribution rules, so companies in this sector tend to face headwinds from time to time.
Lovaii Navlakhi, founder and CEO of International Money Matters, said: “Better to get 1% less with small savings schemes with the highest safety. Looking at the offered coupon of 7.6% for a 5-year period, one would be better off investing in small saving schemes like post office fixed deposit which offers almost similar interest rate with less than a per cent differential. That also comes with utmost safety as it is backed by sovereign safety from the government of India.”
He added: “In our view, any investor who wants to capitalize on the interest rate movements in long term, should opt for medium or long duration debt mutual funds that offer a diversified portfolio across many institutions with preference to highest quality papers (i.e., AAA, Sovereign). This reduces concertation as well as default risk to a great extent. In terms of taxation, an investor also receives indexation benefits from debt mutual funds. Due to all these reasons, we don’t recommend investing in this NCD.”