Strengthen your BOND with money

INVEST IN TAX FREE BONDS

Strengthen the bond between you and your wealth

What is a tax-free bond?

• Security issued by a company, financial institution or the government
• Offers regular or fixed payment of interest in return for borrowed money for a specified period

Why are these bonds called "tax-free"?

You don’t have to pay any tax on the interest earned from these bonds (Income Tax Act, 1961)

Who provides tax-free bonds?

• Government-backed entities
• Public undertakings, such as IRFC, PFC, NHAI, HUDCO, REC, NTPC, NHPC, Indian Renewable Energy Development Agency (IREDA)

How do tax-free bonds work?

• Tenure: You can invest for up to 10, 15, or 20 years – it’s your choice.
• Liquidity: You can easily sell your bonds any time before maturity.
• Safe investment option: You can be sure of receiving the promised regular interest.
• Tax-exempted: You are not required to pay any taxes on the interest you earn.
• Demat account is optional: You can hold these bonds in physical form, too.

Let’s look at an example to understand this better.

Though the interest received from these bonds is non-taxable, any profits derived by selling these bonds in the secondary market are liable to taxes.

Who is eligible to invest in tax-free bonds?

• Retail Individual Investors (RIIs) - Including members of Hindu undivided family (HUF) and Non-Resident Indians (NRIs).
• High Net-worth Individuals (HNIs) - who have a low-risk appetite and can invest up to Rs. 10 lakhs.
• Qualified Institutional Buyers (QIBs) - who have been defined under the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000.
• Corporate, trusts, co-operative banks, regional rural banks

How does one invest in tax-free bonds?

• You can avail these bonds in physical form as well as in Demat mode.
• If you are investing in tax-free bonds during the public issue, you have the option to apply online as well as offline for it.
• If you are investing in tax-free bonds after the public issue, you can invest via your trading account, just like you invest in shares.

Note: Currently, there is no tax-free bond issue in the primary market. If anyone interested can invest through the secondary market.

Why invest in tax-free bonds?

• Tax-free income
• Low risk
• Easy liquidity
• Demat optional
• Ratings by various agencies available

Floating Rate Savings Bonds

We have tie up with HDFC Bank for submission of Applications.

Download Application Form 

Details :

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Various Bonds Available

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IRFC Capital Gain Bond

Power Finance Corporation of India (PFC)

Rural Electrification Corporation Limited (REC)

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IRFC Capital Gain Bond

Power Finance Corporation of India (PFC)

Rural Electrification Corporation Limited (REC)

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IRFC Capital Gain Bond

PFC Capital Gain Bond

REC Capital Gain Bond

NHAI Capital Gain Bond

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Cholamandalam Investment And Finance Company Limited

Non-Convertible Debentures

What are NCDs

Whenever a company wants to raise money from the public it issues a debt paper for a specified tenure where it pays a fixed interest on the investment. This paper is known as a debenture. Some of the debentures are termed convertible debentures since they can be converted into equity shares on maturity. A Non - Convertible debenture or NCD does not have the option of conversion into shares and on maturity, the principal amount along with accumulated interest is paid to the holder of the instrument.

There are two types of NCDs-secured and unsecured. A secured NCD is backed by the assets of the company and if it fails to pay the obligation, the investor holding the debenture can claim it through liquidation of these assets. Contrary to this there is no backing in unsecured NCDs if the company defaults. However, any company seeking to raise money through NCD must get its issue rated by agencies such as CRISIL, ICRA, CARE, and Fitch Ratings. A higher rating (e.g. CRISIL AAA or AA+ Stable) means the issuer has the ability to service its debt on time and carries lower default risk. A lower rating signifies a higher credit risk.

Interest Rates in NCDs

In a high-interest rate scenario, NCDs offer high rates to investors. The average rates in the last few years have been 8-9%. Most of these were secured NCDs. Also, companies that carry higher risk give more than others to lure investors for investment. There can be various options for interest payout such as monthly, quarterly, half-yearly, or annually. However, most NCDs offer annual and cumulative payouts. Investors who wish to earn higher returns opt for the cumulative option where the interest is reinvested and paid at maturity.

Capital Gains

NCDs get listed on stock exchanges where investors can sell them before maturity. Any gain earned through selling in the secondary market is termed as capital gains. What gains an investor will make depends on the interest rate scenario. If interest rates are higher than offered by NCD then the returns will be lower if sold through secondary markets and there might be negative return for investors in some cases. However, if there is a fall in interest rates after buying NCD then selling on the stock market may prove beneficial as the NCD will demand a premium.

Taxability

The interest earned on NCD is clubbed with the income of the bondholder and is taxed at the individual marginal income tax rate. The capital gains have different taxability. Short-term capital gains which arise by selling NCD before one year is taxed as per the income slab of the individual holding the instrument. Any gains which arise by selling NCD after one year and before maturity is taxable as long-term capital gains. The applicable tax rate is 20% with indexation.

Risk Involved

NCDs have some inherent risk associated which an investor must take into consideration before making any investment decision. The biggest risk is the credit risk. The company can default on the future payment and if it is unsecured NCD, an investor does not have any recourse. Most companies get rating through agencies like CRISIL or CARE based on various parameters which investors can check for credibility. A rating of AAA by CRISIL is highest on safety. The second risk is the liquidity risk. Even if NCD get listed, low volumes (case of low rated NCDs) can deprive investors of any opportunity in exiting prematurely.