Tax free bonds are the best bet for tax free income in India. With interest rates falling in the economy as a whole, some of these bonds have seen prices rise over and above their original offer price. Nonetheless, they still offer better yields for individuals in the highest tax bracket. Take a look.
Indian Railways Finance Corporation N1 Series
Indian Railways Finance Corporation offers an interest rate of 8 per cent on its tax free bonds. The bonds, which were issued at Rs 1,000 are currently trading at Rs 1134.
The next interest due date on these bonds is Oct 15, 2017.
The yields are the best only for those in the highest tax bracket. Also, we are unable to predict the exact returns that you get, as the same will depend on the prices at which you buy these tax free bonds.
HUDCO N2 Bonds
The HUDCO N2 Bonds are good for those in the highest tax bracket. The bonds are offered at an interest rate of 8.2 per cent and the interest is paid every year on March 5. The coupon rates are much better than the Indian Railways one, though the yields have dropped due to a gain in prices. At the moment, the HUDCO Bonds are trading at Rs 1,183. Again, if you buy these bonds now, the yields are not too great at the current prices, as the rate per bond is high.
HUDCO N3 Bonds
The Hudco N3 Bonds are almost similar, though they give a coupon rate of 8.1 per cent only.
The bonds are currently priced at Rs 1,110 and the next interest payment date is March 5, 2018. It is important to note that tax free bonds are thinly traded and you cannot buy and sell in large quantities. Also, the price discovery may not be the best around. So, to that extend you need to discern a little while buying.
National Highways Authority Of India
The National Highways Authority of India (NHAI) bonds offer a coupon rate of 8.2 per cent and like all of the companies, they are government owned and hence very secure. The bonds are priced at Rs 1,165 on the NSE. The coupon rate on these bonds is 8.2 per cent. The next interest payment of these bonds would be Oct 1, 2017. The bonds are AAA rated though there are no worries on defaults, since it is a government owned institution.
REC N6 Bonds
The Rural Electrification Corporation (REC) bonds offer a coupon or interest rate in excess of 8 per cent. Actually, the interest rate is 8.46 per cent. This is excellent by any stretch of imagination, especially since the interest earned is tax free.
The next interest payment date is Dec 1, 207. One of the better bonds in terms of interest and coupon rates, though the price is a little high at Rs 1,200.
Indian Railways N7 Series
The Indian Railways N7 series tax free bonds offers an interest rate of 8.23 per cent. Again, a better coupon rate as compared to most tax free bonds. The bonds are currently priced at Rs 1,136 on the National Stock Exchange. The next interest payment of these bonds is only in April of 2018.
What are tax free bonds in India
Government organizations are assigned to issue tax-free bonds and pay a fixed rate of interest. These bonds are of long-term maturity, and the proceeds are spent on infrastructure projects.
The income that you earn in the form of interests offers complete exemption from Income Tax. However, the amount you invest in buying the bonds is not eligible for any tax deduction.
The interest amount earned on tax-free bonds is credited directly to the bond holder's bank account. Since these are government backed securities, there is no credit or default risk attached to it. So, if you see are loooking for a stable source of income, tax-free bonds are the best investment option for you.
Tax-Free bonds are ofefred by companies like IRFC, PFC, NHAI, HUDCO, REC, NTPC. These bonds are valid up 10 to 20 years. These bonds are listed on stock exchanges to offer an exit route to investors. The bonds are tax-free, secured, redeemable and non-convertible nature.
National Highways Authority N6 Series
The bonds are traded at Rs 1210, but, they offer a healthy coupon rate of 7.06 per cent. The next interest payment for these bonds is March 2018. The bonds are currently prices at Rs 1,080.