Skip to main content

Tax Free Bonds 2013

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)
 

Tax-free bonds

 

As the PSUs prepare to issue tax-free bonds worth 48,000 crore over the next few months, this may be a good opportunity to lock in at high rates for the long term

 


The market will soon be flooded with taxfree bonds. Even as the government has allowed several PSUs to raise up to 48,000 crore during 2013-14 (see table), the Rural Electrification Corporation (
REC) is the first one to hit the market.


The tax-free bond issues that had come out earlier this year in February and March had failed miserably, with most companies failing to raise the mandated amounts. At that time, bond yields were quite low, with the 10-year yield quoting below 8%, so the investors didn't bite the bait.


Things are different this time round. The benchmark 10-year yield crossed 9% recently, but closed lower. The companies with a AAA rating are allowed to offer 55 basis points less than the reference government bond rates to retail investors. Retail investors are defined as resident individuals, HUFs or NRIs, who invest up to 10 lakh across all series of bonds in each tranche. This means that an individual can invest in the next tranche or in an issue by another company and still be in the retail category. If the benchmark rate is 9%, the maximum yield offered will be 8.45% for retail investors and 8.2% for others. However, these are maximum rates and issuers can offer a lower interest if they wish.

Tax advantage

The biggest draw for the investor is that the interest earned from these bonds is tax free. Assuming a tax-free coupon yield of 8.2%, the implied pre-tax rate will be to the tune of 11.79% for investors in the 30% tax bracket. Since the recent spike in the bond yield was largely due to the RBI's short-term efforts to prop up the rupee, the yield is likely to fall once the currency stabilises. If the yield falls, the value of these bonds will shoot up in the secondary market. The investors will have the opportunity to book profits by selling these bonds. While short-term capital gains from such a sale will be taxed as normal income, long-term capital gains will be taxed at 10%. The bonds must be held for at least 12 months for the profits to be treated as long-term gains.

What to look for

The most important factor is the rating. The REC has been assigned a AAA rating by agencies. While it is better to go with the AAA-rated companies, experts are advising investors not to follow this rule mechanically. Even AA+ companies, such as Hudco, can be a good investment. Since all of them are government enterprises, there is no default risk. So investors can take advantage of the yield difference by putting money in AA+ companies.


Liquidity is the next important thing. Liquidity is critical even for the long-term investors who plan to hold these bonds till maturity. What if they have to liquidate these instruments due to unforeseen circumstances? These are all primary issues and, therefore, it is impossible to predict the exact liquidity after they list. However, you should give preference to companies that are planning to list on both the BSE and the NSE. The size of the issue is another indicator. The larger the amount, the higher the probability of good volume after listing.

Choose the right tenure

Unlike the previous issues, the latest offerings will have the option of a 20-year term. There are no put or call options for these bonds, so you must decide the time period for which you want to remain invested. Experts are advising investors to go for long duration bonds as they offer higher coupon rates compared to the 10-year bonds. Long duration bonds also reduce the reinvestment risk. Since the interest rates are expected to come down in the long term, you may not get the high interest rates after 10 years. The price volatility will also be higher for long duration bonds and, therefore, the potential to earn capital gains will also be higher.

One also needs to consider the gap between the rates offered to retail and other investors. The former will get the higher yield only till they hold these bonds in their own name. In other words, secondary market purchasers are not treated as retail investors and, therefore, they will get only the lower coupon rate. Due to this, the market price will be based on these stepped down coupon rates. So go with the issues with the lowest gap.

Secondary market route

With prospects of new issues hitting the market with higher coupon rates, existing tax-free bonds have started correcting. Market forces will not allow a difference in yields of the existing and new bonds. This means investors can get good deals in the secondary market, but their tenures will not be as long as those for the new issues.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

Save Tax With Mutual Funds

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       Mutual funds are ideal as long term investment avenues for retail investors. To encourage investments in this avenue, the Government of India offers investors a spate of tax benefits thus ensuring maximum benefit from mutual funds held beyond a year. Sample some of the key benefits and refer to the table for a detailed list of tax rates for different types of schemes ·        Avail deductions under Sec 80C of the Income Tax Act by investing up to a maximum of Rs. 1 lakh in designated Equity Linked Savings Schemes (ELSS). Such investments have a compulsory lock in period of 3 years. ·        First time retail investors in equity with a gross total income of up to Rs. 12 lakh can invest up to Rs. 50,000 in specific MF schemes un...

How much to invest in gold ?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) Let your motivation dictate the share of the yellow metal in your portfolio Enough has been said and written about gold as an investment option. The latest argument is that the craze for gold among Indian households is endangering our country's balance of payments. The policymakers are busy trying to find ways of discouraging investment in gold, but if households keep the common good in mind, they would be paying the market price for gas cylinders as they do for, say, their mobile phone bills. After all, private decisions are driven by private motives. So, how should a household look at gold from its own perspective? Gold is primarily acquired for its merit as a store of value. Even if the worst crisis hits a family, the gold that it holds could be put to use anywhere in th...

LIC's JEEVAN SHIKHAR

  LIC's Jeevan Shikhar is a participating, non-linked, saving cum protection single premium plan wherein the risk cover is ten times of Tabular Single Premium. The proposer will have an option to choose the Maturity Sum Assured. The premium payable shall depend on the chosen amount of Maturity Sum Assured and age at entry of the life assured. This plan also takes care of liquidity need through its loan facility. The plan will be open for sale for a maximum period of 120 days from the date of launch. 1.   BENEFITS   : a) Death Benefit: On death during first five policy years: Before the date of commencement of risk   :   Refund of Single Premium without interest. Single Premium mentioned above shall not include any extra amount if charged under the policy due to underwriting decision and taxes. After the date of commencement of risk   : "Sum Assured on Death" equal to 10 times the tabular single premium shall be payable. On death after completion of five policy years but b...

Investment Strategy - What is Sector Rotation Theory?

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India)   The economy goes through cycles : it expands for a few years and then contracts. Study of historical data suggests that different sectors tend to perform well on the stock markets during different stages of the economic cycle. While history never repeats itself exactly, some broad patterns tend to recur. Investors can take advantage of the sector rotation theory to move their money from those sectors that have seen their best times to those that are likely to do well in future.   The person who developed the sector rotation theory is Sam Stovall, chief investment strategist at Standard & Poor's. He developed this theory by studying data on economic cycles going as far back as 1854 provided by the National Bureau of Economic Research ( NBER ) of the US.   When trying to correlate stock-market perfor...

Rajiv Gandhi Equity Savings Scheme (RGESS) set for launch this week

The finance ministry is set to notify the Rajiv Gandhi Equity Savings Scheme ( RGESS ) this week.   Though Finance Minister PChidambaram had approved on September 21, the scheme announced in this year's Budget, and had said that the revenue department will notify the scheme and the Securities and Exchange Board of India ( Sebi ) would issue relevant circulars within two weeks, it is yet to become operational.   A senior finance ministry official said the revenue department was expected to notify the scheme any day now to attract retail investors to the equity segment.   He added that Sebi was not required to issue any circular for the operationalisation of the scheme and that after the issuance of the revenue department's notification, investors would be able to avail of the benefits of the scheme.   The official accepted that implementation of the scheme had been delayed due to the deliberations on inclusion of mutual funds ( MF ) in it.   ...
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