Budget 2015: Tax-Free Infrastructure Bonds

So tax-free infrastructure bonds for infra projects will be issued.  Assuming they would be similar in nature (payouts will be tax-free) to the ones issued earlier, look before you leap.

For those far away from retirement: Why would you want to invest in a product that offers no compounding?

If I have access to a lump sum, I would be better off investing in a productive asset like equity.

What if I invest in a tax-free bond and invest the tax-free payouts in equity? That is like trying to rub your nose with your tongue, when your hands are free?  Anyway, if you are interested in this, check this out:

Tax-Free Bonds – Interest payout reinvestment calculator

Those not convinced can see: Tax-free Bonds: Do not invest if your retirement is a long way off!

For those close to retirement: Do not lock away most of your money in these bonds even if the coupon rate is a juicy double-digit number.  Your expenses might increase higher than that and you need a good amount in growth assets which are liquid.

Yes, a small portion can be used to generate income from these bonds, but it all depends on the interest rate and how liquid your corpus should be.

Perhaps if the rate is good, someone who has a small corpus (inadequate for inflation-proof income) can buy these bonds from a solid company with little debt. Still there is a risk though.

Read more:

Budget 2015: Sukanya Samriddhi Account – Do Not Invest  

Budget 2015: National Pension Scheme

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12 thoughts on “Budget 2015: Tax-Free Infrastructure Bonds

  1. Anand Balakrishnan

    @ Satav
    Tax free bonds are not tax saving instruments like other 80c investments for example. The interest paid out of these bonds will be tax free unlike for other bonds where interest must be clubbed with income and tax paid.

    You gain when you are paid the interest not when investing.

    Reply
  2. Anand Balakrishnan

    @ Satav
    Tax free bonds are not tax saving instruments like other 80c investments for example. The interest paid out of these bonds will be tax free unlike for other bonds where interest must be clubbed with income and tax paid.

    You gain when you are paid the interest not when investing.

    Reply
  3. V R SHENOI

    sir
    The tax free bonds are daily sale-able.
    I purchased hudco bonds on 25/10/2013, received interest 2517 on 25/10/14, If I sell on 28/02/15, my yield, if calculated by xirr method is 10.61%, which is better than many debt instruments. I have given a much higher value to capital gains value.

    You are stressing on the locking period, but being easily sale-able, you contention is hereby questioned.

    We need not lock the bond upto due date.

    hudco bonds

    date of purchase 25-10-13 30000
    interest received 25-10-14 -2517
    market value 28-02-15 -32252 if I sell , being liquid.
    cg tax 28-02-15 500 (after indexation) (approx.
    having purchased before the
    cagr 10.61% last budget, ltcg is 1 year.

    Reply
  4. V R SHENOI

    sir
    The tax free bonds are daily sale-able.
    I purchased hudco bonds on 25/10/2013, received interest 2517 on 25/10/14, If I sell on 28/02/15, my yield, if calculated by xirr method is 10.61%, which is better than many debt instruments. I have given a much higher value to capital gains value.

    You are stressing on the locking period, but being easily sale-able, you contention is hereby questioned.

    We need not lock the bond upto due date.

    hudco bonds

    date of purchase 25-10-13 30000
    interest received 25-10-14 -2517
    market value 28-02-15 -32252 if I sell , being liquid.
    cg tax 28-02-15 500 (after indexation) (approx.
    having purchased before the
    cagr 10.61% last budget, ltcg is 1 year.

    Reply

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