Last year’s investor frenzy after the issue of tax free bonds of the National Highways Authority of India (NHAI) seems to have subsided, going by initial subscription figures. Unlike 2006, when investors mopped up bonds worth Rs 350 crore in just five days of the offering being launched, only Rs 60 crore has been raised since September this year. The reasons: A cap of Rs 50 lakh imposed on individual investment, lower effective interest yield and a booming stock market providing alternative investment avenues.

“NHAI’s 54EC capital gains bond issue started on September 24 and is picking up only now. We plan to raise Rs 2,000 crore this year,” said a senior NHAI official. The 54 EC bonds issued by NHAI have been a popular means whereby investors can park their capital gains arising from the transfer of a capital asset and avoid paying tax.

However, with a sluggish demand for these bonds, analysts say it is unlikely that NHAI would meet its target. “Considering each investor puts in the maximum permissible amount of Rs 50 lakh, it would need at least 4,000 investors to meet the target of Rs 2,000 crore,” says Delhi-based financial planner Surya Bhatia.

Experts say the primary reason for listless interest in the bond is the investment ceiling imposed by the Government. Till last year, 54 EC bonds were highly popular among investors as they could park any amount and enjoy a tax shelter. However, effective from 2007, the Government imposed a ceiling of Rs 50 lakh on each applicant to ensure that bonds were not cornered by high net worth individuals and corporates. This has effectively cut out big investors like Bharti Group and Larsen & Tubro, which pumped in Rs 700 crore and Rs 200 crore each in the bond issue last year.

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