What are Tax Free Bonds?
Such bonds are issued by Public Sector undertakings, like NTPC, NHAI, etc, and the interest earned by investors is tax free. These are fixed income instruments, suitable for conservative/ risk averse investors. They offer fixed interest rate and is for long tenure, 10 years or more.
There is no upper limit on investment in these bonds. Hence, it is a preferred investment option for HNI clients.
Features of Tax-Free Bonds
- Tax Exemption: Interest Income is tax free. Hence, it is a great investment option for those who fall in high tax brackets.
- Low risk: These bonds are issued by public sector undertakings, which offer highest safety as are government backed. Hence, your capital is protected
- Liquidity Issue: These are long term investment options, hence cannot be liquidated easily. However, these bonds are traded on exchange.
- Attractive interest rates: Considering interest income is tax free, such bonds offer interest rate up to 6%, which is very decent.
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