SBI has exercised the call option on its 15-year retail bonds that paid retail investors a 9.95 per cent interest rate. The bonds issued in Feb – March 2011 had a call option at the end of the 10th year, which has been exercised by SBI. The bond was to mature on March 16, 2026, but due to the call option, investors who had invested in these bonds will get their money back today or tomorrow.
Financial planners attribute this move by SBI due to the lower interest rates prevailing in the current environment. The bonds paid a high interest in line with the then prevailing environment when bank deposits paid 8-9 per cent but for a tenure of 1-2 years. Investors liked these AAA-rated bank from a premier PSU as it was considered safe and they did not have to pay TDS as these bonds were in demat form. Investors lapped up such bonds as they paid a high interest for a minimum of 10 years and provided easy liquidity as they were listed on the stock exchange.
“Investors who get back money could invest in company deposits of Bajaj Finance or Shriram Transport. Those in the high tax bracket could consider debt index funds with a target maturity of 5-6 years,” says Rupesh Bhansali, Head (Distribution), GEPL Capital.
Fixed deposit of Bajaj Finance gives 7 per cent while that of Shriram Transport could yield 8.4 per cent. Target maturity funds could give a pre-tax return of 5.8-6 per cent, but investors could get indexation benefits if they hold for more than 3 years, making post-tax returns better than fixed deposits.