If you are looking for a shorter term duration for returns, the N3 Series Tax Free Bond from HUCDO is a great bet. We are emphasizing the fact that these are short term bonds and you can make solid tax free returns in the next 10 months. Let's get into some of the details.
How you can make solid tax free returns?
The HUDCO N3 Tax Free Bonds are listed on the NSE and will expire in the month of March 2022. The interest rate offered on these bonds is 8.10%. So, if you buy these bonds at the current market price of Rs 1,020 and hold for just 10 months you would get solid tax free returns.
Now, let us explain this with an example. If you spend a sum of Rs 1 lakh and buy these bonds that have a face value of Rs 1,000, you would receive as much as 98 bonds. On this, you would receive an interest rate of Rs 81 per bond (8.1%) annual interest, which is Rs 7938.
We advocate that you buy the bonds close to the Rs 1,020 levels to get decent post tax yields of around 6%. This is because you are paying Rs 20 extra for the bonds, which have a face value of Rs 1,000, so your yields drop.
Given that bank fixed deposits are now offering an interest rate of only 5.5% per annum, that too the interest fully taxable, this would not be a bad bet. However, you should look to buy the bonds at that Rs 1,020 rates and not above.
What happens to these bonds after March 2022?
In March 2022 the bond holders names, bank account number etc., would be taken from their demat account and they would receive the interest as well as the principal amount. So, you would receive that amount in the month of March.
Investors should look to invest in some of the bonds that are listed, including REC, IRFC, HUDCO, PFC etc. There could be some opportunity here to increase your post tax returns. These bonds are generally advised for investors who are in the highest tax bracket.
However, the key to buying these bonds is at a correct rate, so your post tax yields do not drop. Some of these bonds were issued by the larger government owned corporation and have a different expiry. They are largely secure since all of them were allowed to be issue by government owned entities. If you are looking at even longer term tenures that go beyond 2030, they are available to buy. A good amount of research work has to be done though.
Goodreturns.in has taken utmost care in compilation of data for this article. The views and investment tips expressed by authors or employees of Greynium Information Technologies, should not be construed as investment advise to buy Fds mentioned in the article. All readers and investors should note that neither Greynium nor the author of the articles, would be responsible for any decision taken based on these articles. Please do consult a professional advisor.