Currently, I have some investments in the post office Monthly Income Scheme on which I get 8 per cent taxable interest. I'd like to know if HUDCO bonds that offer 9 per cent non-taxable interest are a better option.
-Tapan
Yes, they are a better choice. HUDCO pays interest at 8.76 per cent, 8.83 per cent and 9.01 per cent for tenures of 10 years, 15 years and 20 years respectively. The government has allowed only infrastructure companies to issue such tax free bonds. If you have the money right now, you should definitely invest in it. The return is attractive and the issue is open till January 10, 2014.
However, you must be prepared for substantially lower liquidity. The post office has premature withdrawal options with a penalty of either 1 or 2 per cent, depending on the tenure. However, the issuers of these bonds offer no such options. If you want to pull out your money early, you must be prepared to try and sell it on the secondary markets. Depending on interest rates movements and demand and supply, you could get lower or higher price than the face value.
Do note that while the post office MIS is always available, these bonds are available only during their initial offering. HUDCO bonds are open now, earlier NTPC bonds were open but those are closed.
This article was originally published on December 26, 2013.
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