Skip to main content

Choosing between infrastructure bond and fixed deposit schemes

A comparison between these two avenues to help you pick the one that suits you best


   Infrastructure bonds are the new option on the block to save tax from this year. Till last year, you could invest only Rs 1 lakh and save Rs 30,900 in tax if you were in the highest tax bracket, under Section 80C of the Income Tax Act. However, from the current year, you can invest an additional Rs 20,000 in infrastructure bonds under Section 80CCF. So, you can save up to an additional Rs 6,180 from this year.


   The non-banking finance companies (NBFCs), classified as infrastructure finance companies by the Reserve Bank of India (RBI), can issue these bonds. IFCI, IDFC and L&T Infra have already approached the market. Power Finance Corporation and Life Insurance Corporation (LIC) are expected to come up with their issues in the coming months.


   The interest offered by these bonds is 7.5-8 percent, varying marginally on account of buy-back and listing options. The interest rates offered by these bonds are linked to the 10-year government of India bond, and cannot exceed that. Presently, the 10-year government bond is close to eight percent .The bonds have a lock-in period. The interest is not subject to tax deducted at source (TDS). Investments up to Rs 20,000 helps in saving tax.


   As against the infrastructure bonds, the fixed deposits are for shorter durations. The duration varies from a few days to years. The investors always have an exit option, subject to certain penalty. There is no lock-in period.


   The interest rates are up to around 10 percent per annum. On an average, an AA-rated company offers around two percent higher returns than a bank fixed deposit .Before investing in a company deposit you should check whether the term suits your investment objectives. In most cases, premature withdrawal is not allowed before three months. If you wish to withdraw between the third and sixth month, you may not get any interest at all. If you are forced to withdraw the money between six months and a year, you get three percent lesser than the guaranteed returns.


   Before investing in a company, check the credentials of the company. Fixed deposits are covered by the Deposit Insurance and Credit Guarantee Corporation of India's guarantee, which assures repayment of Rs 1 lakh in case of a default. However, company deposits offer no such guarantee and the safety of the deposit depends on the company's financial position. You should opt for companies that pay dividends and are profit-making. Investors should give preference to triple-A or double-A rated schemes.


   The interest rates offered by the companies vary. Fixed deposits offer higher returns because these deposits are more risky than the state-sponsored small savings schemes or mutual fund schemes which invest in a debt portfolio. Here, the only factor that could assure you of timely payment of interest as well as repayment is the company's financial strength. So, the company with a stronger financial record will pay less and the others will be forced to offer a little more.


   Based on your risk profile you could invest in company fixed deposits. You should diversify by spreading your deposits across a number of companies and industries to reduce risk.


   The interest earned on fixed deposits is subject to TDS.

 

Popular posts from this blog

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now