Tax free bonds have emerged as a highly popular investment option among investors due to the taxation benefit they offer. We have very few instruments in India where the interest income is exempt from tax in India. One of them is the PPF (Public Provident Fund) and the second is the Tax Free bonds. Most of the other interest yielding instruments like bank deposits, company fixed deposits, NSC, Post Office Monthly Income Scheme etc., attract tax on interest income.
The Tax-free Bonds are set to make a comeback to the market after a gap of one year. The Central Board of Direct Taxes (CBDT) has recently issued a notification related to ‘new Tax Free Bonds FY 2015-16’. As per this notification, Tax Free Bonds (TFBs) to the tune of Rs 40,000 crore, will hit the market in this Financial Year (2015-16), starting this October. These bonds will have tenures of 10, 15 and 20 years.
Several state-run companies raised Rs 30,000 crore through tax-free bonds in FY12, Rs 25,000 crore in FY13 and Rs 50,000 crore in FY14. These funds are utilized to fund infrastructure projects. There was no such bond issuance in FY 2015.
New Tax Free Bonds FY 2015-16
Below are the details of the firms and the maximum allocated amount of funds they can raise by offering new Tax Free Bonds in the current Financial Year (2016);
- The National Highways Authority of India will make the largest offering to the tune of Rs 24,000 crore
- The Indian Railway Finance Corporation can raise funds to the tune of Rs 6,000 crore
- The Housing and Urban Development Corporation – Rs 5,000 crore
- The Indian Renewable Energy Development Agency – Rs 2,000 crore
- NTPC – Rs 1,000 crore
- Rural Electrification Corporation – Rs 1,000 crore and (Read my detailed review on REC 2015 Tax Free Bonds)
- Power Finance Corporation – Rs 1,000 crore
In this post let us understand – What are tax free bonds? Difference between Tax Free & Tax saving / deduction. How to choose best Tax Free Bond? What are the tax implications of buying and selling of Tax Free Bonds (TFBs)? Bank FD Vs Tax Free bond. Debt Mutual Fund Vs Tax Free Bond.
What are Tax-Free Bonds?
Let us first understand, what is a Bond?
A bond is a Fixed Income security (debt investment) in which an investor loans money to an entity (typically corporate or governmental / PSUs) which borrows the funds for a defined period (tenure) of time at a variable or fixed interest rate (coupon rate).
Those bonds which are exempt from taxation on the ‘interest income’ under the Income Tax Act, 1961 are called Tax-free bonds. These are usually issued by government-backed entities.
(Although, the interest received on TFBs is exempted, the investor would still be required to disclose it in his/her Income Tax Return as an ‘exempted income’.)
Tax Saving Vs Tax-Free
So, how is tax-saving different from tax-free?
Though the two terms are used in relation to taxation matters, there exists a considerable difference between the two. Tax-saving implies that there are certain provisions in the Indian Income Tax Act that allows an individual to save tax by investment in some particular investment instruments (like ELSS mutual funds or Life insurance premium etc., under Section 80c) or when the taxpayer has incurred some expenses on which tax liability can be minimized to some extent (Example – HRA, LTA etc.,).
Tax-free on the other hand implies income that is not taxable in the hands of investors i.e. the income from such tax-free source is not included in the total income for the purpose of computation of total tax liability. With no income tax being charged on the returns on the tax-free investment no other rebate in the form of tax deduction for the amount invested is provided. So, Tax free bonds are not eligible for deduction under section 80c.
Can Individuals buy Tax Free Bonds?
- Retail Individual Investors (RIIs)
- High Net-worth Individuals (HNIs)
- NRIs (Non-Resident Indians)can subscribe to Tax-free Bonds.
Individual investors, Hindu Undivided Family (HUF’s) Karta and NRI fall under the category of RIIs. These investors can apply for up to Rs 10 Lakh in each issue. NRIs can subscribe to Tax free bonds on either repatriation or non-repatriation basis. Individual Investors investing more than Rs 10 Lakh in Tax free bonds are classified as HNIs.
How to buy New Tax Free Bonds in India?
You can subscribe to new tax free bonds when the Bond Issue is open for subscription. The issues will be open for few days only. The bonds can be bought in physical form or through your Demat account. The subscriber has to furnish Permanent Account Number (PAN) to the issuer of the Bonds.
In case, if you miss buying TFBs during the Public issue, you can still buy them from Secondary market through stock exchanges. But, they can be traded on the exchanges in Demat mode only.
TFBs are long-term investments with minimum lock-in period of 10 years. So, if you wish to redeem them before the maturity period then you can sell them in secondary market. But, liquidity (finding a buyer) can be a challenge. Hence, it is advisable to subscribe to bonds of a large Public Issues instead of the small ones.
Checklist to buy best Tax Free Bond in FY 2015-16
How to select best Tax free bonds? Below are the important factors that need to be considered before investing in a Tax free bond public issue.
- Credit Rating – Credit rating of a bond is a third party assessment of the quality of bond in terms of its credit performance. Some of the leading credit rating agencies in India are CRISIL, ICRA, and Fitch. It is advisable to buy Tax-Free Bonds which have good Credit Rating. These ratings can be AAA (good rating), AA+, AA & AA-. Lower the rating, higher would be the interest rate.
- Coupon Rate – The rate of interest offered by the issuer of the bond is called Coupon. Interest rate is the most important parameter to evaluate a bond. The coupon rate of TFBs is benchmarked against the government securities (G-Sec) of equal maturity. So, for 10 year lock-in tax free bond the benchmark would be 10 year G-Sec rates. The current 10 year G-Sec rate is around 7.75%. Coupon Rate is calculated based on the type of investor, G-Sec yield and the credit rating. (Most of the Tax-free bonds that were issued in FY 2013-14 carried interest rate of 8% to 9%. With the interest rate on a declining trajectory, the coupon rate on TFBs may not be as high as in FY14)
- Tenure – Another important factor that you need to look at is ‘Bond Tenure’. The tenure of bonds shall be for ten or fifteen or twenty years. The significance of tenure lies in the fact that investment in bonds must be aligned to the time horizon set for your financial goals.
- Payment Frequency – Payment frequency shows how many times in a given year the coupon is being paid by the company. Higher the payment frequency for a given coupon better it is for the investor. But, most of the Tax free bond issues offer annual payment option only.
Tax free bonds & Tax Implications
- Is TDS applicable on Tax free bonds? – These bonds are tax free and hence not subject to TDS.
- Interest income earned on TFBs is exempted from income tax. The interest earned from these bonds does not part form of your total taxable income.
- The invested amount is not eligible for any tax deduction.
- Are Capital Gains taxes applicable on Tax free bonds? – Though the interest earned on these bonds is tax-free, any capital gain from sale in the secondary market is taxable. If you sell your Bond for a price that is more than the cost then you would have to consider this as a capital gain. Short-term capital gains from sale of tax-free bonds on exchanges are taxed at your income tax slab rate, while long-term capital gains are taxed at 10% without indexation. The indexation benefit is not available for Bonds/NCDs. (For STCG holding period is less than 12 months. For LTCG holding period should be more than 12 months)
Tax free bonds Vs Bank Fixed Deposits
The interest earned on bank FDs and other types of bonds are not exempted from income tax. It is added to your income and is taxed as per the income-tax slabs. As interest earned from tax-free bonds is not taxed, investors in higher tax brackets mostly earn a better post-tax return than from FDs. But remember, the bank FDs score over tax-free bonds in terms of liquidity as these bonds have longer maturity tenure.
Tax free bonds Vs Tax saving bank FD
The tax saving bank Fixed Deposit has a lock-in period of 5 years. The maturity period of tax free bonds can be in the range of 10 to 20 years. The interest earned on tax saving FD is taxable but the invested amount can be claimed as deduction under Section 80c. You can invest in Bank FD anytime but you can invest in TFBs only when the issue opens.
Tax free bonds Vs Debt mutual funds
I believe that ‘lack of liquidity’ is the biggest disadvantage of Tax-Free Bonds. The debt mutual funds can generate higher returns when compared to Tax free bonds and you may redeem them anytime. So, the trade off is between higher returns by MFs and the post-tax benefits of tax-free bonds.
Should you invest in new Tax Free Bonds FY 2015-16
It is advisable to follow the principle –Think beyond taxes when investing. Do not invest in Tax-Free bonds just because the interest income is tax free. Your investment should match your financial goals requirements.
These bonds generally become attractive when the interest rates in the financial system are high. The interest rates are in a downward trend now. So, the coupon rates offered for the new Tax fee bond issues may not be that attractive.
But, if your income tax slab rate is 30% then you can consider investing some portion of your savings towards these bonds. Also, if you are looking for a steady source of income annually (periodically) and can afford to lock-in your capital then you may consider investing in Tax Free bonds.
(Image courtesy of Stuart Miles at FreeDigitalPhotos.net)
You may like reading detailed reviews on;
Hello Srikanth,
Is it wise to invest in Tax Free Bonds when in higher tax brackets. And , i observe that the liquidity of tax free bonds is very low…How to purchase these bonds? Please also guide on the method of calculation of yield of these bonds when done on current market price. Regards
Dear Vinay,
Yes, liquidity can be an issue. Can be bought through demat account service provider.
You can check the bond yields using this calculator @ SEBI portal..
If the price of the bond is lesser than the face value, then the yield will be higher than the coupon rate. However, if the price of the bond is more than face value, then the yield on the bond is lesser than the coupon rate.
Dear Sir, We are 5 senior citizens in an average age group of 70 years & our some Bank FD’s andELSS MF’s are maturing shortly. kindly suggest some good schemes,FD’s, MF’s and onetime/single premium etc. for investments for maximum period of 5 years maturity with tension free best possible fixed interest returns along with easy liquidity and safety. We are not very rigid but will prefer for Tax Free returns in view to lead tension free life.
An early reply is requested.
.
Dear DEVENDRA,
Kindly do not consider investing in Single premium life insurance products. Are you looking at accumulation or periodic income?
Want to know which is the best Insurance Plan for me(35 Years) and my wife(33 Years) and kid (4 Years) according to you for 3-5 lakhs.
Please let me know.
Dear Shridhar,
Kindly go through below articles and you may revert to me;
If life is unpredictable, insurance can’t be optional.
Term insurance Vs traditional life insurance plans.
LIC child plan – review.
Best Term insurance plans.
I want to invest Rs.1000 for 3 years ELSS MF, please suggest me which will give high out put for 3 years.
Dear Shridhar..You may go through this article – Best ELSS Funds 2016.
Thank you, let me check and update
what is the treatment if we buy the TFB and sell this before its maturity in open market , what are the tax implications on interest and principal amount?
Dear ajay,
Kindly note that the interest received on TFBs are tax-exempt.
Though the interest earned on these bonds is tax-free, any capital gain from sale in the secondary market is taxable. If you sell your Bond for a price that is more than the cost then you would have to consider this as a capital gain. Short-term capital gains from sale of tax-free bonds on exchanges are taxed at your income tax slab rate, while long-term capital gains are taxed at 10% without indexation. The indexation benefit is not available for Bonds/NCDs. (For STCG holding period is less than 12 months. For LTCG holding period should be more than 12 months)
The holding period for determining STCG or LTCG applicability in case of debt instruments is now 36 months.
Dear Vijay,
The holding period considered for LTCG on tradable bonds including tax free bonds & NCDs is still 1 year and the applicable LTCG tax rate is flat 10%. STCG tax is as per the tax slab of the investor.
Sir,
I am planning to sell my house property purchased 15 years back for Rs. 4.90 Lacs. I have further constructed a first floor for Rs. 5.00 from my own funds. I am planning to sell the property for Rs 50 Lacs. How do i avoid capital gains?? Kindly advise.
Thanks in advance
Ramamoorthy
Dear Ramamoorthy..Kindly go through this article : How to save Long Term capital Gains on sale of property?
dear mr, Reddy, Any sellers of TFBs may contact 8197053948
What r prospects of 2016 tfbs henceforth?
Dear Shri Sreekanth
Are there any Tax-free Bonds scheduled before 31 March 2016.
Can you please guide & advice for any forthcoming Tax-free Bonds.
With kind regards
Vinod
Dear Vinod..I will surely try to publish articles on upcoming TFBs. Suggest you to either like our FB page or subscribe for newsletter, so that you don’t miss the blog updates.
Dear Vinod Sir,
If u want to TFB so please contact me on this number 9871779037
Dear Sreekanth,
Thanks for the informative post .
I have one more question , if you could clarify .
If a person invest 5 Lakh in one of such bond and another 6 Lakh in another bond ( total of 11 Lakh in one financial year) will be treated as high net worth individual OR it is only treated if a person invest more than 10 Lakh one such scheme.
Thanks
DJ
Dear DJ..It is per issue subscription basis.
Dear Sreekanth,
As Adyanthaya says, your article explains things in such a simple but, crystal clear language. Excellent! Congrats for being such a great blogger helping people with utmost clarity on each & every question asked. Proud to be associated with you,
Dear Mam,
In fact, I am lucky enough to get trained by you. Thank you for being my MENTOR and for your kind words 🙂
If possible, request you to kindly keep sharing your views on articles.
Hello Mr. Reddy
I am thinking on investing in Steady Income sources i.e. NCD, Taxfree bonds from Secondary market.
please let know how to identify and which parameter to check while selecting the this bonds /debentures
Thanks & regards
Bhushan
Dear Bhushan,
If your investment objective is ‘safety of capital & regular income’, your investments should be in highly rated (good credit rating) financial securities.
Kindly read: How to invest or select best NCDs?
Current interest rate scenario, promoters/company’s financial health, taxation, your requirements (goals) etc should be given due importance.
National-Highways-Authority-of-India bond, 7.39% for 10 years. Worth it?
I am 21, in the 30% taxable slab.
Dear Mohit..Considering your age, it might be a better option for you to invest in equity oriented mutual funds.
Thanks for replying.
My initial plan was to get it as it would help in saving tax, but it seems it would only help if I have capital gain, but none 🙁
I have already exhausted my limit on 80C, any other thing I could try?
Dear Mohit,
Kindly read:
List of Income Tax deductions for FY 2015-16.
IT declaration & Investment proofs.
Currently I have investment in 5 SIP depositing 500 each Franklin India Flexi Cap fund – growth , Franklin India High growth company – growth , Franklin India Prima fund , Franklin India smaller company Fund and HDFC Top 200 fund – growth.In this Jan 2016 their tenure will complete ,so I want to know best SIP which I can invest in 2016 giving high returns among this and from outside also..I can invest only up to 3000/-
Dear Rajani,
Any specific reason for investing in three Franklin funds?
Kindly read:
Best Equity funds.
MF portfolio overlap analysis tools.
My MF picks.
I don’t have much idea about this.I joined in these 5 funds according to my friends suggestion.I checked Best equity funds 2015 which you suggested above. Can we predict that this will perform well in 2016 also ?
Please suggest me best among these…
Dear Rajani..It’s your money & invest based on your requirements.
In short-term anything can happen, but most of the above funds can do well if held for longer-period.
Read: My MF picks.
Hello Mr. Reddy, I have 20 lakhs in FD. Now the interest rate is decrease from 9% to ~7.75%, Can you please advise where/how I can invest (MF or tax free bond)? My current age is 33 year old and my investment time frame is 30 years. I am living abroad but money is in indian rupees so I am looking for option which does not require any headache to manage.
Thank you.
Dear Dipesh,
Do you need periodic income (payments)? FDs are not a great choice as long-term investments (though they offer safety & guarenteed returns).
Kindly read : Why one should not invest in FDs/RDs for longer period?
Considering your age and investment horizon, advisable to invest in hybrid and/or equity oriented funds. But be aware of the risks associated with them.
Kindly read:
Best Balanced funds.
Best Equity funds.
Best MF MIPs.
URGENT PL.
1. If I have received the amount of sale of ancestral property in 10 May 2015 can I now invest in Capital Gains Bond of NAHAI in November 2015. Reply urgent.
2. Have received from sale of ancestral in May 2015 and want to buy a second property before March 2017 can I open capital gains account in a bank and use the money received to buy a property till then (March 2017 ), since I have not been able to identify a suitable property and am looking out for the same.
Dear Mathur,
You can invest. But do note that interest received on these bonds is taxable.
Suggest you to go through my article : How to save Long Term Capital Gains on selling a property?”
HELLO I AM A DOCTOR,MY CURRENT AGE IS 45.AFTER 3 YERS I WILL QUIT MY MEDICAL PRACTICE COMPLETLY DUE TO SOME REASONS.THAT TIME I WILL HAVE 50 LAKH AMOUNT IN MY HAND.IT IS ONLY AMOUNT I WILL HAVE TO LIVE WITH MY 3 MEMBERS FAMILY.HOW WILL U SUGGEST TO INVEST THIS 50 LAKH? I WILL NEED MONTHLY FIX INCOME FROM THIS AMOUNT,,,,,,,,,,,,THANKS
Dear yeshwant,
Is it compulsory to get fixed amount? Or would you be able to take some risk and consider investing in options like company fixed deposits or MF monthly income plans etc.,??
Hi Mr. Reddy,
How do one get back the principal amount invested after the lock in period of say 10 years?
Thanks,
Dear Amit,
You need to redeem the bonds. You have to submit the bonds to the concerned issuer.
please suggest me a fund for 10 to 12 years monthly sip for wealth creation, as soon as possible, as i am already late, 48 years old. i will be grateful to you. thanking you.
Dear Shaw,
If you are new to mutual fund investments, consider investing in a balanced fund like HDFC balance fund or TATA balance fund.
Read my articles :
Top Balanced funds.
Top Equity funds.
Many thanks for your response, can you also please advise on the below:
1. How to recover the invested money after locking period. whether it will be automatically transferred to our saving bank account.
2. Where to buy this bond?
3. After completing the locking period, whether we are allowed to invest in FD (or) we can make use for some other investment.
Dear Anand,
It depends on the bond issuer’s policies and procedures. You can buy these bonds through your banker or through distribution platforms like karvy/icicidirect etc.,
You can re-invest in other investment avenues.
Recently I have sold my old flat, which I bought 14 years back. Now I am not interested again in investing in property. I preferred a monthly interest from the property sold money. Please advise whether i should buy capital gain bond.
Dear Anand,
You can purchase Capital Gains Bonds under Section 54EC. You are allowed to invest a maximum of Rs 50lakhs in a financial year in these bonds. The entire capital gain realized should be invested within 6 months of the date of transfer in eligible bonds. Such investment is to be held for 3 years. If the amount invested in bonds is less than the capital gains realized, only proportionate capital gains would be exempt from tax.
Dear Shreekanthbhai,
I m saleride person my monthly income is 36000 take home salary.my Lic 54000 per annu. Now my age is 39.I want to corps 50 lakhs how much I have to invest every mont? My first preference is MF SIP plz guide me.
Dear vala,
Kindly provide more details about your LIC policies.
What is your time-frame to accumulate Rs 50 Lakh?
Kindly read below articles;
Calculate Future value of your investments
Top Equity funds
Top balanced funds
i want to know the dates when the tax free bonds will be issued.
Can I invest on line?
Dear Mr Patheja ..Kindly refer to our discussion on FB chat 🙂
Hi! was waiting anxiously for ntpc (1st) tfb but got disappointed because only demat transaction allowed! I feel this is really an unwelcoming step for individual investors who don’t have demat account. Sad. Hopefully will get lucky in further bonds. Will be looking forward to your inputs. Basically wanted to park money lying idle in FD to somewhere more tax efficient long term. Any suggestions. Low risk. Govt. employee/30% bracket.
please suggest three best TFB with good coupon rate
sir, please suggest three best TFB with good coupon rate
Dear Sir,
I find your articles very informative and objectively written. Thanks!
I am confused by your above reply regarding capital loss on TFB and am looking forward to your clarification.
You have mentioned that if TFB is bought at a higher price from secondary market, then the extra amount paid over face value can be called as a capital loss and adjusted against other incomes or gains. But in the article about setting off short term capital losses, you have mentioned that STCG cannot be set off against income but only against capital gains and that LTCG cannot be set off at all. Is the treatment different for TFB? If we TFB matures after 8 years, it will be long term so how can it be set off?
P.S.: Reposting the question as I had earlier posted this as a reply by mistake
Dear,
If there is a ‘Capital Gain’, how can it be set off..only losses can be set-off against gains.
Short term capital loss can be set off against any STCG of any Capital Asset.
(I am relocating to a new place, hence slight delay in replying to blog comments)
Dear Sir,
Thanks for your reply. Sorry, I really meant to ask about setting off short-term capital losses, not STCG. Typing mistake on my part. So if I understand correctly, if one buys TFB at a premium and holds it for say 5 years of more, the purchase premium can only be considered LTCL and therefore cannot be set off.
Btw, for stocks, short-term is 1 year and anything above is long term.Does the same hold true for TFBs, or is the period 3 years as is the case for debt funds?
What if this Tax Free Bond having a face value of Rs 1000 is bought from the secondary market at a premium of suppose Rs 50 @ Rs 1050 . Interest is paid annually and Tax Free . At the time of maturity or repayment of the Bond the par value of Rs 1000 is paid back. What is the tax treatment of this loss of Rs 50 ? Whether it is shown as a “Capital Loss” and under which section OR the loss needs to be ignored for income tax purpose ?
Dear Chetan,
It can be considered as ‘Capital loss’. The capital losses (short term / long term) can be adjusted with other incomes/gains.
Dear Sir,
I find your articles very informative and objectively written. Thanks!
I am confused by your above reply regarding capital loss on TFB and am looking forward to your clarification.
You have mentioned that if TFB is bought at a higher price from secondary market, then the extra amount paid over face value can be called as a capital loss and adjusted against other incomes or gains. But in the article about setting off short term capital losses, you have mentioned that STCG cannot be set off against income but only against capital gains and that LTCG cannot be set off at all. Is the treatment different for TFB? If we TFB matures after 8 years, it will be long term so how can it be set off?
Dear Sreekantji,
Although the interest received is exempted , it would still be required to be disclosed in the income tax return as exempted income. Where is the space to show this amount in the e-filing return ?
Dear Sudhir..Which ITR form are you filing?
Although the interest received is exempted, it would still be required to be disclosed in the income tax return as exempted income. However, there is no space for showing this exempted income in the e-filing return. Pl.advice.
Dear Mr. Sreekanth,
As per your article “The debt mutual funds can generate higher returns when compared to Tax free bonds and you may redeem them anytime. So, the trade off is between higher returns by MFs and the post-tax benefits of tax-free bonds.”
The old 10-yr is currently quoting @ 7.90 % yield, thereby the Taxfree Bonds will come @ 7.90-0.55 i.e 7.30 -7.35 Coupon rate. The GILT Debt fund carry a charge upto 1 %, and hence yield to investor will be 7.90 – 1 = 6.90%. Then how are they going to generate higher returns than TAx free Bonds ?
One more query : As per your article : ” Are Capital Gains taxes applicable on Tax free bonds? – Though the interest earned on these bonds is tax-free, any capital gain from sale in the secondary market is taxable. If you sell your Bond for a price that is more than the cost then you would have to consider this as a capital gain. Short-term capital gains from sale of tax-free bonds on exchanges are taxed at your income tax slab rate, while long-term capital gains are taxed at 10% without indexation and 20% with indexation, whichever is lower. By indexing, you adjust the purchasing price with annual inflation.”
Indexation benefit is not available for listed Bonds, NCD, Debentures.
Dear AMARDEEP,
There are various options available under Debt fund category and Gilt funds are only one of the options right?? Kindly share your views.
Thank you for highlighting the mistake in the article. Yes, indexation benefit is not available for Bonds & NCDs. I have corrected the mistake now.
Informative article. Can the tax free bonds be purchased to ward-off the income tax on capital gain received on selling of a plot of land
Dear Mr Gupta,
No, tax free bonds are different from The Capital Gains Tax Exemption Bond or 54EC Bonds.
Capital gain bonds are the bonds on which the interest amount received is not exempted, however the amount that is invested in these bonds can be claimed as an exemption from Capital Gains under Section 54EC.
Sir,
I am a sr,ctzn and retired . I invest mostly in bank deposits. It has caused big tax liability. Please advice me.
I am very happy to go through yr web-site which is very useful and educative.
Thanks
Rajkumar
Dear RAJKUMAR,
Let me know how can I assist you?
There were no issue of TF Bonds during 2014.
How about Infrastructure Bonds this year wherein upto 20000/- investment gets exemption in income u/s 80 CCC. They were upto Mar 13 but not in Mar 2014.
In the absence of fresh issue of TF Bonds in 2014, most of bonds were quoting higher than face value, though some more in relation to otheres. This was like NCDs of STFC, MFL, SCUF, MMFL, MAFIL based on public opinion.
What is your expectation for future returns on 7 TFB approved in order of merit for them.
Seeing your knowledge, and interest in replying, I am asking these questions. Wish you Good Luck.
Any person having balance limit for 80C (1.5 L) should take other approved items as against TFB, since investment itself gets bigger exemption.
Dear Goyal,
I think infra bonds are not available in this FY too.
The new issues may carry a coupon rate of around 7 to 8%. Tax assessees who are in highest tax slab can consider subscribing to tax-free bonds.
Please let me know how HNI limit of 10 lakh is calculated – is it per issuer or investments in all issues together
Thanks
Dear Chandramouli..It is per issue.
Hi,
This is just to say that you are doing a brilliant job. Actually, I feel it is your lucid style of writing which makes it very interesting to read.
I will be eagerly awaiting your comments regarding individual TFB when they get issued.
Incidentally, I would like to know if the principal and interest on a TFB is guaranteed like in an FD.
Thanks!
Dr.Paul
Dear Biju,
We need to go through the Issue prospectus to know if the bonds are secured or not. Most of the TFBs are issued by Govt backed entities, so they are more secured than most of the Non-convertible debentures.
Thank you for your appreciation. I will surely try to write reviews on upcoming TFB Public issues.
dear srikant nhpc has already raised 1500 crore by issuing bonds tomorrow though private placement with coupon rate of 8.50 so can we accept similar coupon rates in upcoming taxfree bond 2015
Dear Nitesh,
I believe that we can expect coupon rates to be in the range of 7.5% to 8.5%.
THANK YOU FOR YOUR HELP. IT HELPS ME A LOT. ACTUALLY I WAS CONSIDERING IT JUST FOR 80C BUT YOU HAVE CLEARED THAT IT IS NOT THE RIGHT OPTION FOR 80 C. I BELIEVE I WILL DEFINITELY FIND ANOTHER OPTION FOR THIS.
your method to motivate invester is very good thanks for it
Thank you dear Somdatt. Keep visiting and kindly share the articles with your friends 🙂
I don’t get your point
“These bonds generally become attractive when the interest rates in the financial system are high. The interest rates are in a downward trend now. So, the coupon rates offered for the new Tax fee bond issues may not be that attractive.”
Tax Free bonds provide fixed income at a fixed interest, so at the time of declining interest scenario one should park his money at a fixed interest to earn more such as in NSC, KVP, Tax free bonds.
Please comment.
Regards
Dear Samy,
That point is in comparison with 2013-14 Tax free bond coupon rates. The interest rates offered by TFBs during that period were very good.
Last few quarters, we have seen RBI cutting interest rates and the 10 year G-sec is around 7.5%, so new TFBs may offer interest rates of around 6.5% to 7%.
Very Helpful, Keep us updated.Keep writing
Thank you Manjit 🙂
There cannot be a simpler language than this. You have covered almost everything a common investor should know about tax free bonds. I like your language and presentation very much. Compliments to you. I wish every investor should go through this article. Please keep it up.
Thank you so much for your kind and motivating words. Keep visiting!
Informative article,nice work
Thank you Dushyant 🙂