Tax-Free Bonds FY 15-16: Do not buy!

Seven public sector enterprises will be issuing tax-free bonds this financial year. Thankfully, the interest rates of these bond will be much lower than the last issue. Thankfully because that would serve as a natural deterrent.

If you are young and far away from retirement, invest your money productively instead of buying these bonds.  I had earlier written a more detailed post on this. Have a look if you need more convincing.

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

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

If you are a retiree (early/normal) or are close to retirement and think buying these bonds (or the old ones from the secondary market) would be a good way to generate tax-free income, do think twice.

These bonds might make sense for those who do not have much of a corpus to play with. They could lock into a bond that offers a good rate of return and get constant income.

However, the current rates are not attractive. The post office senior citizens scheme would offer a better return after tax (for those in 10% slab) with better peace of mind than these bonds.

If you looking to earn an income from your corpus that should increase each year (preferably close to inflation), stay away from these bonds. Your first priority ought to be liquidity and not tax-free returns.

I think it is not a smart idea to lock up a lump sum in these bonds, regardless of the fact that they can be sold in the secondary market with a demat account.

You can so much better with debt mutual funds, will full flexibility and liquidity. Yes, you need to pay out tax at 20% with indexation. That is, IMO, a much better deal.

 

 Don't like ads but want to support the site? Subscribe to the ad-free newsletter! 
You will get the full post-ad-free delivered to your inbox for Rs. 3000 a year. Follow this link to read the terms and sign up! 
Want to conduct a sales-free "basics of money management" session in your office?
I conduct free seminars to employees or societies. Only the very basics and getting-started steps are discussed (no scary math):For example: How to define financial goals, how to save tax with a clear goal in mind; How to use a credit card for maximum benefit; When to buy a house; How to start investing; where to invest; how to invest for and after retirement etc. depending on the audience. If you are interested, you can contact me: freefincal [at] Gmail [dot] com. I can do the talk via conferencing software, so there is no cost for your company. If you want me to travel, you need to cover my airfare (I live in Chennai)

Connect with us on social media


Do check out my books


You Can Be Rich Too with Goal-Based InvestingYou can be rich too with goal based investing

My first book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create customg solutions for your lifestye!Get it now.  It is also available in Kindle format.

Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want

Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you want My second book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a youngearner

The ultimate guide to travel by Pranav Surya

Travel-Training-Kit-Cover This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step.  Get the pdf for ₹199 (instant download)

Create a "from start to finish" financial plan with this free robo advisory software template


Free Apps for your Android Phone

All calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)

About Freefincal

Freefincal has open-source, comprehensive Excel spreadsheets, tools, analysis and unbiased, conflict of interest-free commentary on different aspects of personal finance and investing. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. We do not accept sponsored posts, links or guest posts request from content writers and agencies.

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.

7 thoughts on “Tax-Free Bonds FY 15-16: Do not buy!

  1. Valid points,Pattu.What I like most about your posts is that there is no ambiguity in your suggestions-which are usually backed up with hard statistical facts and projections.Of course,in the instant case,there was no need for any number-crunching-the tax-free bonds to be issued in F.Y.2015-16 have no investment value for the ordinary investors(irrespective of their marginal tax rate) since the rates offered would be unattractive.

  2. Valid points,Pattu.What I like most about your posts is that there is no ambiguity in your suggestions-which are usually backed up with hard statistical facts and projections.Of course,in the instant case,there was no need for any number-crunching-the tax-free bonds to be issued in F.Y.2015-16 have no investment value for the ordinary investors(irrespective of their marginal tax rate) since the rates offered would be unattractive.

  3. Pattu, ur not considering all points relavant to these bonds. E.g., these also will have appreciation / capital returns when interest rates drop. See the last issue of these bonds, many of those are at a premium of 20%

    1. That applies only when you wish to sell the bonds. Most people buy the bonds to get regular income. I dont see the benefit of buying the bonds only to trade them later. I have better things to do, like use a debt fund for instance.

  4. Pattu, ur not considering all points relavant to these bonds. E.g., these also will have appreciation / capital returns when interest rates drop. See the last issue of these bonds, many of those are at a premium of 20%

    1. That applies only when you wish to sell the bonds. Most people buy the bonds to get regular income. I dont see the benefit of buying the bonds only to trade them later. I have better things to do, like use a debt fund for instance.

Comments are closed.