People always seek investment options that give them back better financial returns. ZERO tax on the returns, amongst other benefits, make tax-free bonds as one of the sorted investments in the market. To know more about tax-free bonds, take a read.
Tax-Free Bonds – Who are you?
Tax-free bonds are types of financial products or goods, which the government enterprises issue; the example of these is the ‘Municipal Bonds’. They offer a fixed rate of interest; thus, it is a low-risk investment. Like said, these funds get tax-exemption as per section 10 of the Income Tax of India 1961. Generally, tax-free bonds have a long-term maturity of 10 years/more. The government invests the money collected from these bonds in housing & infrastructure.
Investors who are looking to earn a fixed annual income from the proceedings of the interest can go for tax-free bonds. Entities like co-operative & regional banks, trusts, and corporate companies have been regular investors in these bonds for over the last years.
Features of Tax-Free Bonds?
- Tax-exemption: In here, the earned income in the form of interest is free from income-tax. Also, there is no TDS applicable to these bonds. But it is advisable to declare your interest as income because tax-free bonds don’t imply that you can claim for the tax-deduction.
- Liquidity: You cannot liquidate tax-free bonds quickly just like debt funds. Since, the government bonds have lock-in-period and are long-term investments, liquidation of the bonds may not be an easy way-out. Thus, tax-free bonds don’t act as an emergency fund.
- Risk Factors: Tax-free bonds also offer a fixed annual income & capital protection. Thus, it is sincerely safe.
- Time-period: They have a higher lock-in-period – from 10 to 20 years. You cannot withdraw money before the maturity date.
Commonly Tax-free Bonds?
- National Highway Authority of India
- Rural Electrification Corporation
- NTPC Limited and Indian Railways
- Urban Development Corporation
- Rural Electrification Limited
- Power Finance Corporation, are a few to consider
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*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.