Shares of NMDC

If you invest in the shares of NMDC, you get a dividend yield of as much as 7.5 per cent. Let us explain this with an example. Last year, NMDC declared a dividend of Rs 8.50 per share. If it continues to declare the same kind of dividend, as it did last year, the yield works to 7.5 per cent on a share price of Rs 107.

Dividend income earned is tax free. So, you get dual benefits. The first is a decent dividend yield of 7.5 per cent, which is like the fixed deposit of State Bank of India and the second is tax free income.

HUDCO Tax Free Bonds N2

The HUDCO N2 Bonds are listed on the NSE. The bonds offer you tax free income, as the interest earned from these bonds are not taxed.

The bonds come with an interest rate of 8.2 per cent and expire in 2027.

This is a good investment that offers you tax free income. As mentioned earlier, you can buy the bonds from the NSE.

Axis Short Term Fund

Go for the Axis Short Term Fund, if you are looking at tax free dividends. The Scheme has given a good returns of 9.39 per cent in the last 1 year and returns of 9.39 per cent on an average each year, in the last three years.

Dividends received from mutual funds is tax free in the hands of the investors. You can invest in the scheme through an SIP of Rs 1,000 as well.

Most of the investments of the fund is in government securities.

Baroda Pioneer Short Term Fund

Again, Baroda Pioneer Short Term Fund, has given good returns in the last one year of 9.45 per cent. The fund has large investment in government owned securities. If you are looking at tax free income, you should invest in the Baroda Pioneer Short Term Fund, as the dividend income is free from tax.

The net asset value of the fortnightly dividend plan is around Rs 10.04. Not a bad scheme, considering that most of the funds are placed in good quality debt.

NHAI N1 Tax Free Bond

The National Highways Authority of India (NHAI) Tax Free Bond Offers you an interest rate of 8.2 per cent.

Again, these bonds are tax free bonds and the interest income is tax free. The bonds mature in 2022 and in case you want to buy them, you can buy from the NSE.

You can also sell them on the NSE, as and when you want to liquidate, given that they expire on Jan 2022.

Not a bad tax free investment option.

Noida Toll

The story in Noida Toll is just like NMDC - ie the high dividend income, which is tax free. The company last year declared a dividend of 30 per cent, which on a price of Rs 21, takes the dividend yield to as high as 13 per cent. A good dividend option for investors.

So, you can buy the shares of Noida Toll for tax free dividend.