The Myfirstcrore team believes that tax-free bonds may be used as a regular source of income for conservative investors in higher tax bands. Tax-free bonds reduce the risk of reinvestment because the money is locked up for a longer length of time than bank fixed deposits. Reinvestment hazards refer to the possibility of future interest rates on bank fixed deposits falling. Learn more about FMPs online at Complete Circle Capital Pvt. Ltd.

After a one-year hiatus, tax-free bonds, a promising option for risk-averse investors, are likely to return to the market. Nearly Rs 50,000 crore was generated through tax-free bonds in 2013-14. The plan to issue tax-free bonds by the Railways and the National Highways Authority of India has already been approved by the government. Try the SIP Calculator at Complete Circle Capital Pvt. Ltd.

Salient features of tax free bonds

  • Government-backed enterprises typically issue tax-free bonds to generate long-term finance for infrastructure projects. Credit agencies assign ratings to these instruments after examining the financial health of the bond issuers.
  • These bonds may be purchased in denominations ranging from $1,000 to $5,000. Tax-free bonds have a 10- to 20-year maturity duration.
  • Interest on these bonds is usually paid once a year. Retail investors are sometimes provided with a somewhat greater interest rate than other types of investors.
  • Because they are issued by government-backed businesses, tax-free bonds have minimal default risk.
  • Tax-free bonds do not qualify for income tax deductions, but the interest received on these bonds is not taxed. Because interest rates are predicted to fall, investors can receive capital gains on these bonds.
  • Tax-free bonds are traded on stock markets, providing investors with a way out. They may, however, be sparsely traded in some situations.
  • Capital gains on tax-free bonds are subject to taxation. Capital gains on the selling of tax-free bonds on stock exchanges are taxed according to the investor's tax bracket if the holding time is less than 12 months. If the bonds are held for more than 12 months, the profits are taxed at 10% (or 20% with indexation), whichever is lower.
  • In comparison to fixed deposits, if a tax-free bond has an interest rate of 8% and the investor is subject to a 30% tax bracket, the tax-free interest rate on these bonds will be effectively 11.50% before tax. This means that the investor will get the same rate of interest as a bank deposit, which now yields 11.50 per cent.

If you are interested in investing in tax free bonds, please Contact Us, and one of our customer service representatives will contact you. Look at the Succession Planning only at Complete Circle Capital Pvt. Ltd.