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Money Aug 22, 2013

Spoilt for choice: Time is ripe to invest in tax-free bonds

By Firstbiz Staff

If you are thinking of investing in tax-free bonds, soon you will be spoilt for choices. With the government permitting state-owned companies to issue tax-free bonds in the first half of the financial year, many such papers are likely to hit the market, notes a report in Business Standard today.

With companies such as IIFC, IRCC, NHAI expected to raise as much as Rs 48,000 crore, there is enough reason for retail investors to cheer. After all 40 percent of this is to be raised from retail investors.

Reuters

Reuters

These bonds a safe investment option in the current market scenario. With an uptick in interest rates, new bonds can even give you higher yields of around 8.5 percent. The tax-free bonds are competitive when pitched against FDs and FMP. After all, the best thing about these bonds is that they give a decent return for long term, and these bonds work well especially for risk-averse investors.

Of course, like any other financial investment, you will have to be careful to check the ratings of these bonds. These bonds are a long-term investment option, and you don't want to invest in a paper which will be downgraded in the future. It is better to stick to bonds with rating of 'AAA.'

Also keep in mind investing in tax-free bonds is a good avenue for those in higher tax brackets. For those who are in the lower tax brackets, corporate FDs with high credit ratings would be better. When investing in these bonds don't expect them to be too liquid, because though they can be traded in the secondary market, you might not necessarily have enough buyers. Read the full Business Standard story here.

To know more about tax-free bonds, read this Firstpost storyhere.

by Firstbiz Staff

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