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Friday, June 17, 2016

Buy Tax Free Bonds

Buy Tax Free Bonds Online
 
 
The falling interest rate regime means that retail investors will benefit from buying tax-free bonds now.
 
The Indian infrastructure sector, especially power and roads, have large investment plans.

They will be raising a significant amount of money during this financial year through taxable bonds. This is because the government is not allowing any new tax-free bond issues in this financial year.

High net worth investors (HNIs) and others in the high tax brackets have started realising the significance of this development and have started purchasing tax-free bonds listed on stock exchanges. The recent jump in prices of these bonds can be attributed mainly to a buying spree from this high income group. The NHAI 7.69% tax-free bonds, issued in March 2016, are already trading at `1,063, up by more than 6% compared to its issue price of `1,000. The fall in interest rate structure, due to cuts in benchmark rate by the RBI, and the government's small savings rate cut, is also fuelling the demand in tax-free bonds.

What should the retail investors do? Experts say that it is better they lock in at the yield available right now. Since current yield is reasonable, it makes sense to buy tax-free bonds, especially 10-year bonds, which have completed 3-4 years (with a residual holding period of 6-7 years)

The yields on several listed taxfree bonds are around 7% now (see table) and they may come down further. This is because the RBI may cut the rates further this year if the monsoon plays out as expected.The government plans to reset the small savings rate on a quarterly basis now. This means that the small savings rate could come down further in July. Banks shifting to the marginal cost lending rate (MCLR) regime and resetting their lending rates on a monthly basis is another factor that is helping in the faster transmission of rate cuts. If rates continue to fall as expected, the market price of these taxfree bonds will go up further and this generates a good trading opportunity for shortto medium-term investors. As for taxation, these bonds have a slight advantage over debt mutual funds.

 

While you need to hold debt funds for three years to qualify for long-term capital gains (LTCG) benefit, you only have to hold tax-free bonds for one year. LTCG will be taxed at 10% without indexation. Being interest bearing securities, indexation benefit won't be available.

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Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds

Top 10 Tax Saver Mutual Funds to invest in India for 2016

Best 10 ELSS Mutual Funds in india for 2016

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. Franklin India TaxShield

4. ICICI Prudential Long Term Equity Fund

5. IDFC Tax Advantage (ELSS) Fund

6. Birla Sun Life Tax Relief 96

7. DSP BlackRock Tax Saver Fund

8. Reliance Tax Saver (ELSS) Fund

9. Religare Tax Plan

10. Birla Sun Life Tax Plan

Invest in Best Performing 2016 Tax Saver Mutual Funds Online

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