I have a gross salary of Rs 8.6 lakh per annum. I have done extensive tax saving for the year. But I need to invest another Rs12,000 towards tax saving. Should I invest in infrastructure bonds? My investments are in three LIC policies, one ULIP from Bajaj Allianz, and SIPs in three tax-saving funds - Fidelity Tax Advantage, Sundaram BNP Paribas Taxsaver and Quantum Tax Saving Fund.
- Atul Sarma
You certainly have done a number of investments towards tax planning. Your fund selection in terms of Equity Linked Savings Schemes (ELSS) is good. Where infrastructure bonds are concerned, we are not so sure. The regulations now permit Non-Banking Financial Companies (NBFCs), which are classified as infrastructure finance companies by the Reserve Bank of India (RBI), to issue such bonds.
There are few areas of concern.
First, these bonds will be of 10-year tenures, at the least. Do you want to block your money for that long? However, the minimum lock-in period is limited to five years and the investor can exit either through the secondary market or through a buyback facility (the actual exit mode will be determined by the bond issuer).
Secondly, they are not to be compulsorily rated. So besides institutions like Life Insurance Corporation (LIC) of India, IDFC and Industrial Finance Corporation of India (IFCI), other institutions will hop on.
Thirdly, the returns may not be too impressive since the ceiling is to match yields with government securities (G-Secs).
This article was originally published on October 21, 2010.
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