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

Mutual Fund Review: Taurus Tax Shield

    Taurus Tax Shield has seen a turnaround in performance since 2007, but still remains a volatile offering… The fund has seen a turnaround in its performance since 2007 and has delivered impressively during market rallies since then. The portfolio is also more diversified. It contained its downfall to an average level in 2008 but is still one of the most volatile offerings in this category. Bold investors can look at this fund.   Strategy The fund manager invests across the market capitalisation and sectors. The selection of stocks is made on the basis of long-term business prospects and value creation. Fund Insight Launched in March 1996, the fund was a laggard with just two annual outperformances. Concentrated stock bets and high exposure to mid and small caps led to it being hit harder during market downturns. The number of stocks in the portfolio never exceeded 20 and it was not rare to see the top 5 holdings account for around 60 per cent of the portfolio. After b...

AXIS Long Term Equity Fund - The Best Tax Saver Fund for 2016

  AXIS Long Term Equity Fund - Invest Online   History:   The open ended mutual fund was launched on December 21 in the year 2009. It is benchmarked against BSE 200 and managed by the fund manager JINESH GOPANI. Initially the scheme was called as Axis tax saver fund but later it was renamed as Axis long term equity fund with effect from September 2, 2011. Nature of investment: As far as asset allocation is concerned, 97.52% of the stocks are equity and 0.02% is debt based. The primary focus of the fund is to invest in diversified equity stocks that have higher growth potential. Total asset size of the fund is in the tune of 4,996 CRORE as of June 30, 2015. Performance: The performance of the fund for one year, 3 years and 5 years are 23.6%, 29.9% and 19.1 respectively which are far greater than 6.4%, 14% and 5.6% benchmark figures. It has also preformed fairly well against SBI magnum Tax Gain (G) and HDFC tax saver (G). The growth comparison is enumerated below;                        ...

Health insurance guide - Part I

Insurance, by definition, is morbid. What if I die suddenly? What if my home caught fire? What if I had to undergo expensive medical treatment? What if something that I thought happened only to others befell me? Insurers, who work with large samples, calculate the probability of such an event and, hence, the possibility of them having to pay out a sum of money to mitigate, to the extent possible, the effects of that disaster. However, the possibility of you undergoing some kind of expensive medical treatment during your lifetime is far more likely than you dying suddenly or your house burning down. Given that costs at private healthcare facilities, where you are most likely to land up, is high, and, doubling every four years 10 months or so, the rest of your money life could easily go out of whack if you had to incur such expenses. Just 12 per cent of India's population is covered with some sort of health insurance. Pared to the bone, for a comparatively small price, health insu...

IDFC Classic Equity Fund

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   IDFC Classic Equity Fund IDFC Classic Equity is a large-cap equity fund which currently has assets under management worth Rs. 158.52 crore. It was launched in August 2005. The fund is benchmarked against the BSE-200 Index. Performance YTD 1-Year 3-Year 5-Year Since Inception IDFC Classic Equity 0.93 26.61 6.30 1.01 11.65 BSE 200 1.52 17.31 6.00 1.99 12.98 All figures in % as on January 31, 2013; Returns above one-year in CAGR terms ...

10 year NSC launched, all set to give 8.7 per cent

Invest in Mutual Funds Online Download Mutual Fund Application Forms THE government introduced a 10-year National Savings Certificate ( NSC ), which will earn an interest rate of 8.7 per cent per annum. The notification for the launch of the new savings instrument, 10-year National Savings Certificate (IX-Issue), 2011, has been issued, an official statement said. The scheme will come into effect from December 1, it added. Investments in NSC will earn interest at the rate of 8.7 per cent compounded semi-annually, it said, adding that on an investment of Rs 100, the depositor will get Rs 234.35 on maturity of the NSC. There is no upper limit for investment in the certificate, it added. The new scheme will give better returns along with tax benefit to savers. At present, the maturity period of NSC is six years and it qualifies for tax relief for investment up to Rs 1,00,000 under Section 80C. The decision to raise the maturity period of NSC has been taken on the b...
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