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IREDA Tax Free Bonds 2016: Investors In 20% and 30% Tax Bracket Should Invest


The IREDA Tax Free Bonds 2016 is yet another opportunity to invest in the tax free bonds for those in the 20% and 30% tax bracket.


IREDA Tax Free Bonds 2016: Investors In 20% and 30% Tax Bracket Should Invest
This comes close on the heels of the NHAI Tax Free Bonds, and would open on Jan 8, 2016. Here are some of the features of the tax free bonds.

Features of the IREDA Tax Free Bonds:

1) IREDA is a government owned entity.

2) It is offering the highest interest rates so far from tax free bonds issued this year.

3) At 7.74% on a 20 year tax free bonds it is the highest interest rates offered so far.

4) Rating agencies have accorded a rating of AA+ on these bonds.

5) NRIs cannot apply for these bonds.

6) Bonds are to be listed on the exchanges in India.

7) As these bonds are tax free, the interest on the bonds are completely exempt from tax.

8) Interest is paid once every year on the bonds.

IREDA Tax Free Bonds Jan 2016

TenureInterest Rate
10 years7.53%
15 years7.74%
20 years7.68%

Who Should Invest in The IREDA Tax Free Bonds?

The interest for retail investors on a 20 per cent tax free bond is 7.68 per cent. The effective post tax yield works to 11.1 per cent, if you are in the 30 per cent tax bracket and 9.67 per cent, if you are in the 20 per cent tax bracket. Similarly, if you in the 20 per cent tax bracket, you can get a yield of as much as 9.75 per cent.

What this means is that the post tax yield is significantly higher as compared to bank deposit rates. This makes these tax free bonds very attractive to buy, if you compare them with bank interest rates. For example, you can get a yield around 8 per cent in one of the public sector bank fixed deposits in the country.


However, if you are investing in equities, it may tend to give you better returns over a longer time frame and tax free. However, there is no certainty of returns, like tax free bonds, which are extremely secure instruments.

The one good thing about the IREDA Tax Free Bonds is that they would be listed, thus giving them easy liquidity. However, one thing to remember with the tax free bonds is that they are not highly liquid, so selling in large quantities may not be possible,

The bonds are being issued in the demat and the physical form. Those who have a demat account can buy the same through your share broking account. The bonds will be credited in the same manner as demat shares are credited.

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