REC Bonds - List of 79 Rural Electrification Corporation Limited Bonds

What are REC bonds?

Bonds issued by Rural Electrification Corporation Ltd., a subsidiary of PFC (Power Finance Corporation) under the Ministry of Power.

Are REC bonds tax-free?

REC bonds are not tax-free anymore. They are taxed just like other bonds. 

However, REC used to issue tax-free bonds in the past. Some may still be available for investment on exchanges. However the new issues of REC tax-free bonds have stopped for many years now.

Do REC bonds qualify as 54EC capital gains bonds?

Yes, REC bonds qualify as capital gains bonds under Income Tax Section 54EC. Under this section, an investor who has realized capital gains tax from the sale of a property/land can invest up to Rs. 50,00,000 in a financial year within 6 months from the sale of the capital asset. The amount invested would be exempt from long-term capital gains tax.

It is important to note that REC also issues bonds that don’t qualify for capital gains exemption under section 54EC.

What is the credit rating of REC bonds?

REC is a subsidiary of PFC (Power Finance Corporation) and both establishments are backed by the government. Because of this, credit rating agencies have awarded a credit rating of AAA to REC bonds as well as PFC bonds.

REC bonds interest rates

54EC capital gains bonds issued by the REC have an interest rate of 5% and a maturity of 5 years.

Are REC bonds guaranteed by the government?

Yes, the government guarantees both interest and principal payments of REC bonds.

Who should invest in REC bonds?

REC bonds can be purchased only if you have a realized long-term capital gain from a capital asset like land or property in the last 6 months. Further, the limit of investments in REC 54EC capital gains bonds is Rs. 50,00,000.

REC bonds maturity procedure

REC bond's maturity proceeds are repaid directly in the demat account. If the bonds were bought in physical format, then surrendering of the bond certificate is not required. On maturity, REC will repay the money via cheque or online bank transfer. 

Risks of investing in REC bonds

Investing in REC bonds is virtually risk-free from a credit default perspective. 

However, the interest rate these bonds offer is very low (5%), which may fall short of the inflation rate.

Another risk is that by investing in REC bonds, you are locking away your money for 5 years because early redemption is not allowed in REC bonds.

Advantages of investing in REC bonds

The biggest advantage of investing in REC bonds is that they help you save long-term capital gains tax realized from a sale of a capital asset if you invest within 6 months from the realization of the capital gains.

How to identify the best REC bonds?

REC bond issues that qualify for 54EC/capital gains exemption are always ongoing and have the same features in terms of interest rate (5%), maturity period (5 years) etc. In this case, the ongoing issue is the best REC bond for you.

However, if you are looking to invest in non-54EC REC bonds, then you must consider the yield and maturity date to identify the best REC bond for you.