NHAI Bonds

NHAI (National Highways Authority of India) Bonds are debt instruments issued by the NHAI to raise funds for building and maintaining India’s national highway network. These bonds offer investors a safe, government-backed investment option with a fixed interest rate and tax benefits for certain categories.

What Are NHAI Bonds?

NHAI is a statutory authority under the Ministry of Road Transport and Highways. It issues bonds in the market to finance highway construction projects under its portfolio. The bonds are backed by the NHAI’s cash flows (primarily toll collections and government grants), giving them high credit quality.

NHAI has issued various types of bonds over the years, including:

– **Regular capital bonds**: for institutional investors with competitive interest rates
– **Tax-free bonds**: offered in 2013-14 and 2015-16 with interest exempt from income tax (these have been fully subscribed and are no longer available for fresh purchase)
– **7.35% NHAI bonds**: listed on NSE/BSE and tradeable in the secondary market

Key Features of NHAI Bonds

– **Credit rating**: AAA (highest safety rating) by CRISIL and ICRA
– **Issuer**: government statutory body; extremely low default risk
– **Interest**: fixed coupon paid semi-annually or annually
– **Tenure**: typically 10 to 20 years for long-term bonds
– **Tax-free bonds** (historical): interest was exempt from income tax under Section 10(15)(iv)

NHAI Bonds in the Secondary Market

Tax-free NHAI bonds issued in 2013-16 trade in the secondary market on BSE and NSE. Their prices depend on prevailing interest rates. When rates fall, old high-coupon bonds trade at a premium; when rates rise, they trade at a discount. Retail investors can buy these bonds through a demat-linked stock trading account.

Who Should Invest in NHAI Bonds?

– High tax bracket investors seeking tax-efficient fixed income
– Conservative investors who want government-backed safety with better yield than FDs
– Long-term investors comfortable with 10 to 20-year tenures

Practical Example

Sunita, in the 30% tax bracket, buys secondary-market NHAI tax-free bonds with a coupon of 8.1% in 2015. On a Rs 5 lakh investment, she earns Rs 40,500 per year in tax-free interest. At her 30% tax rate, the pre-tax equivalent yield is approximately 11.57%, significantly better than a bank FD. She holds the bonds to maturity, knowing they are backed by a government statutory authority.

Key Takeaways

– NHAI bonds are AAA-rated bonds issued by India’s national highway authority
– Tax-free NHAI bonds (issued 2013-16) are available in the secondary market and offer tax-exempt interest
– Interest income on regular NHAI bonds is taxable; only the specifically designated tax-free series is exempt
– Very safe investment due to government backing; ideal for conservative, long-term investors
– Prices in the secondary market reflect current interest rate levels; buy below par when rates are high