HOW TO INVEST THROUGH CASH IN TAX FREE BONDS IN INDIA?

500 Per Crore / Sep 28, 2021

As an investor in the stock market, you would love to hear the term tax-free as it offers great returns associated with your investment. But, are you aware of tax-free bond investments in India? If not, stay tuned with this blog as we are going to discuss on what are tax-free bonds, what are the features of tax-free bonds and how can investor invest in a tax-free bond?

 

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WHAT ARE TAX-FREE BONDS?

Tax-free bonds are bonds that are issued by the government enterprise to raise funds for developing the infrastructure and other specific purposes. Nowadays, tax-free bonds have acquired huge popularity as the interest funds earned from these bonds are free from being taxed. The tax-free bonds provide fixed interest rates and poss less-risk of non-payment of interest amount.

 

High-net worth individuals, HUF members, trusts, co-operative banks and qualified institutional investors can invest in the tax-free bonds.

 

WHAT ARE THE FEATURES OF TAX-FREE BONDS?

There are several features that add advantages to your investment in tax-free bonds. They are:

 

  • As an investor, you can avail tax exemptions on your tax-free bonds with high income interests.
  • Since these bonds are backed by governments, the risk-factor involved in it is nearly zero.
  • Tax-free bond offers guaranteed fixed monthly or annual income.
  • Tax-free bonds are long-duration bonds with tenure ranging from ten to twenty years.
  • The returns from tax-free bonds is dependable on the purchase price and it's also not as liquid as debt funds.
  • Tax-free bonds are issued by the Government of India owned companies and the issue will be open only for a specified time duration.

 

HOW TO INVEST IN TAX-FREE BONDS?

Investing in tax-free bond is a simple and easy process as you can perform it through online or offline mode when the government opens an issue. Investors have to subscribe to them within a short duration of time. Also, if an investor wishes to invest in the tax-free bonds post the date of issue, then the investor can invest through a trading account. Tax-free bonds offer guaranteed returns and these bonds can be traded in physical form or through a DEMAT account.

 

INVESTING IN TAX-FREE BONDS

Tax-free bonds offer low risk investments with fixed tax-free income. Tax-free bonds are moderately liquid and can be traded on the stock exchange. However, an investor should consider the long tenures along with the interest rate and tax benefits offered. While investing your fund in these bonds, you should always seek advice from the experts as they can guide you to make your investment successful.

 

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