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.
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:
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.
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