IFCI Tax saving bonds closing on November 14, 2011

Last few days are left before the Closure Date of the Series III Issue of Tax Saving Infrastructure Bonds of IFCI Limited that opened on September 21, 2011 (scheduled to close on November 14, 2011 - unless decided to pre-close). 

The Long Term Infrastructure Bonds carry tax benefits under Section 80 CCF of Income Tax Act, 1961 up-to an investment of Rs.20,000/- during the FY 2011-12. The four options available for investment and other key highlights of the Issue are as under :

Option I	Option II	Option III	Option IV
10 Years	10 Years	15 Years	15 Years
Cumulative	Annual	Cumulative	Annual
8.50% p.a.	8.50% p.a.	8.75% p.a.	8.75% p.a.
Buyback option at 5th and 7th year end		Buyback option at 7th, 10th and 12th  year end
1.   Bonds can be applied-for in physical or dematerialized form 2.   The face value and Issue price per bond is Rs. 5,000/- 3.   Bonds shall be listed on Bombay Stock Exchange (BSE) 4.   There is lock-in period of 5 years after which they can be traded/transferred 5.   Only Resident Indian Individuals (major) / HUF can apply.

For further details including downloading of the Application Form, Information Memorandum etc., you may visit the website www.ifciltd.com or click at http://www.ifciltd.com/IFCIBonds/InfrastructureBonds/CurrentIssue/tabid/225/Default.aspx

Should you require any further clarification, feel free to write at infrabonds@ifciltd.com.

Also read : http://timir126.blogspot.com/2010/10/idfc-long-term-infrastructure-bonds-ipo.html

Have you enabled Auto-Sweep?

Saving account is a special place for day to day transaction like ECS, salary, loan & credit card payments etc which keep money flowing bidirectional. It carries interest rate of 3% to 3.5%. The alternate way to gain higher interest rate has some schemes with some locking period, which are like PPF, NSC, LICs, bonds, Fix & recurring deposits and Mutual funds with market risks associated with it. Traditional fix deposits provide an interest rate of 6-7%.
But as major chunk of our money is kept in saving account attracting interest of only 3%, one can opt for a scheme which give benefit of Savings Account + Fix deposits, called Auto-sweep.

What is 'Auto Sweep'?
It is combination of saving & fixed deposit. It interlinks saving and deposit accounts.

How 'Auto Sweep' works?
A customer specifies the amount to be kept in the savings account or agrees to the minimum amount as decided by banks for auto sweep. An amount above this specified limit, called as threshold limit, is then automatically transferred to the customer’s fixed deposit account, which is attached to the savings account. Thus, the money does not remain idle in this arrangement and also earn a higher rate of return for the customer. Whenever the customer wants to withdraw money greater than what he/she has in the savings account, the excess is reverse-swept from his/her fixed deposit account. In this case, the customer earns interest as per the prevailing fixed deposit rates for that particular period. In simple words

1. You decide the maximum amount that you want in your account. This is also called the threshold limit.
2. The amount for which the FDs need to be created, is decided
   
3. The tenure of these FDs, is decided.
   

After this, technology takes care of everything!

An Example?
Let’s understand this with the help of an example.
Vishnu deposits Rs 30,000 in his ‘Auto Sweep’-enabled savings account on Jan. 1, 2008. The defined threshold limit for his ‘Auto Sweep’ account is Rs 10,000 while the minimum balance required by the bank is Rs 5,000. So, out of his total deposit, Rs 20,000 will go to the fixed deposit account which offers a higher rate of interest. (Presently, one-year deposits carry an interest rate of 8 per cent.) Vishnu withdraws Rs 15,000 on Jan. 1, 2009. Since he is already having Rs 10,000 in his savings account (assuming that he has not done any transaction in this period) and he has to maintain a minimum balance of Rs 5,000, he requires another Rs 10,000, which will be taken from his fixed deposit account. He earns 8 per cent on the deposit of Rs 10,000 (remaining amount in the fixed deposit account) unlike in normal savings account where he earns only 3.5 per cent. In case Vishnu withdraws all his deposits after a period, say, 5 months, he would be entitled to get the prevailing deposit rates for 5 months along with certain penalty (usually 1%), which in any case will be higher than 3.5 per cent, the current savings account rate.

Any Disadvantages?

• Amount must be transferred for a minimum period to avoid any penalty. E.g. If money stays at-least 3 months out of minimum period of 1 year, one may go for it.
• Some banks calculate simple interest in 'Auto sweep' unlike of cumulative interest on Fixed deposits.
  

So what is the conclusion?
With Auto Sweep facility, investors get the best of both worlds – they enjoy the liquidity of savings account and at the same time earn extra return from fixed deposit account. This is one of the best way to channelize and utilize one’s unused savings, especially meant for salaried people who often end up with some idle money in their savings accounts. So, if your savings accounts are still not activated for the auto sweep facility, ask your bank officials to enable it for the threshold limit as desired by you or to the bank’s minimum threshold limit.

Other sources?

• ICICI bank http://www.icicibank.com/pfsuser/temp/tcbank_rules_regu.htm