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Benefits of investing in tax-free bonds

Tax-free bonds are issued by government-backed entities and they assure tax-free returns for a long period of 10, 15 and 20 years

Tax free bonds are announced by different agencies from time to time. NHAI bonds are about to open for subscription from 17 December, 2015. Can you please explain the benefits of investing in these instruments?
- RKM

Tax-free bonds are issued by government-backed entities. That means there is no default risk. They also assure tax-free returns for a long period of 10, 15 and 20 years. This means investors are assured a regular annual income and they don't have to worry about a likely fall in interest rates. (It may hurt a little when rates go up). They are extremely useful for retired people who want to supplement their income without attracting extra tax burden. They are also extremely useful for people in the highest tax slab as income from comparable avenues are taxed at the income tax slab applicable to the investor. They are listed on the stock exchange to facilitate early exit. However, these bonds are not very actively traded. So, investors should ideally invest with the idea of holding them till maturity.

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