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Should You Invest in Tax-Free NABARD Notified Bonds Over Stocks?


Financial advisors often say that it is good to diversify your investments in fixed income instruments, and equity, to balance the risk. With the kind of volatility observed in the stock markets of late, it is good to look at alternative options to put money in, that are less risky.


Here is a brief understanding on notified bonds issued by National Bank for Agriculture and Rural Development (NABARD) that was first issued in March 2016.

What Are NABARD Notified Bonds?

What Are NABARD Notified Bonds?

In March 2016, NABARD issued tax free bonds worth Rs 5,000 crores for tenures of 10,15 and 20 years. These have been given a rating of 'AAA/Stable' by CRISIL, which means they are one of the highest rated in terms of safety. Bonds usually carry low risk because the issuers of these bonds are obligated to paid the coupon rate (interest), which becomes your fixed flow of income, rather than the dependance on the possibility of appreciation in the value of the instrument (like in the case of equity) to make a future capital gain.

As for the information on the issuer, NABARD is an institution started by passing a special act in the parliament to help aid the development of the agricultural and non-farm sections of the rural sections of India. It helps in providing credit to small-scale industries involved in similar activities and for economic development of these areas.

Important highlights of NABARD's Tax Free Bonds

Important highlights of NABARD's Tax Free Bonds

Coupon rates for investors with less than Rs 10 lakh investment:

  • 7.64 percent for 15 years tenure
  • 7.29 percent for 10 years tenure

Retail investor applicants with over Rs 10 lakh in investment, will be offered 0.25 less in coupon rates in each tenure.

  • Face Value: Rs 1,000 per bond
  • Minimum investment requirement: One needs to invest in at least 5 bonds, which means Rs 5,000. Besides the requirement, investors can purchase more in multiples of 1 bond.
  • NRIs cannot invest in these bonds.
  • Interest is paid annually and is totally tax-free (no TDS).
Points to consider before investing

Points to consider before investing

  • These are AAA/AA rated. Both CRISIL and India Ratings have given it AAA/Stable rating.
  • NABARD is a Government of India enterprise, making it safer than private institutions.
  • Tax-free interest.
  • Apart from the coupon, bonds have the potential to fetch you returns from appreciation in bond value. So you can make capital gains when interest rates fall.
  • You can opt out of the investment at anytime by selling the bonds at secondary markets like BSE or NSE. NABARD Tax-Free bonds are proposed to be listed on the BSE.
  • These bonds can be held in physical form as well, which means you need not worry if you do not have a demat account.
  • It is an ideal investment for those that fall in the higher income bracket of the income tax act who are looking for consistent returns over a long period of time. Small investors made not stand to gain much as the returns are on par with 1-year bank FDs. For long-term investment, equity mutual funds could be a better bet as you can stand to gains returns higher than 10 percent.

Read more about: nabard tax free bonds
Story first published: Saturday, October 27, 2018, 12:16 [IST]
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