Wednesday, October 20, 2010


Country's largest lender State Bank of India's first retail bond issue of Rs. 1,000 crore was subscribed over 17 times on the opening day, showing enthused participation from investors. Many of our readers have enquired whether it would be prudent to subscribe to the bonds as it is a long term saving proposal.
We would like to reassure our readers that the bond issue of
SBI is one of the finest saving proposal for common people as well as for high net worth people who would like to have extreme safety and security of their money . In many years to come such high rate of interest from any fixed income securities may not be available. In spite of the fact that there would be no income tax concession on the product it is a good saving option, according to most economists. The return is even better than Senior citizen’s Saving scheme. The SCSS has 9% return whereas the SBI bond has return limit of 9.25 % to 9.50% return depending on the length of the saving period. The best Saving option is PPF. This is issue next best option for all risk averse investors.
I would like to recommend risk averse senior citizens as well as young investors to subscribe to the bond issue. My only apprehension was that many of the applicants may not be able to get the desired number of bonds as the issue is bound to be heavily oversubscribed.
The issue, which opened for subscription yesterday, was supposed to remain open till October 25. Market sources said that in the bond sale, the portion reserved for wealthy individuals (High Net worth Individuals) was subscribed by over 16 times, while that reserved for retail investors was oversubscribed 6.4 times already.

The offering comprises issue of bonds worth Rs. 500 crore, with an option to raise it further upto Rs. 500 crore by issuing additional bonds, with the total aggregating to Rs. 1,000 crore.
Our readers need not worry if they miss the bond issue because the issue is going to be listed in the stock market later.
This listing arrangement would provide an opportunity to all investors to buy the bond from open market if they miss the issue now. The bond may be available in premium or in discount below the issue price depending on the trend of bank interest. If the bank interest goes up the cost of the bond would go down and if the rate of bank interest goes down the bond would be available in premium. There is a strong possibility of bank interest going up in near future hence investors who miss the opportunity now may be getting the the same bond in discount and so actual interest return would be higher.

The bonds would offer an interest of 9.25 per cent for 10 years and 9.5 per cent for 15 years. Citigroup, Kotak Mahindra Capital and SBI Capital Markets are the managers for the issue. The bonds are proposed to be listed on the National Stock Exchange of India (NSE).

The bonds would be allotted to all categories on “first come first serve basis” based on the date of application. So It would be prudent to rush to the bank and subscribe the issue since according to us this is one of the best option for safe and quality saving procedure