Money Saver India
New tax free bonds continue to offer good returns

New tax free bonds continue to offer good returns

The tax free yield on these new offerings is far better than the 7% post-tax returns on bank deposits.

It continues to rain tax-free bonds this season. Indian Renewable Energy Development Agency (IREDA), India Infrastructure Finance Company (IIFC) and Central-government owned Ennore Port have launched their tax-free bond schemes. While the returns on these investments are not taxed, there is no tax benefit when one invests in the bonds.

Investments can be made for 10, 15 and 20 years in these bonds. Subscriptions to the IREDA issue can be made upto March 10, 2014, while IIFC and Ennore Port tax free-bonds are open till March 14, 2014. IREDA and IIFC are offering a coupon rate of 8.41% of the 10 year series and 8.80% for the 15 and 20 year series. The Ennore Port bond issue is better in these terms, where the coupon for 10 years is 8.61%, while rate for 15 and 20 years is 9% for retail investors.

If you look at the notional pre-tax rates of the IIFCL and IREDA, at 12.17-12.74% these are much better than bank fixed deposits. Even on long-term tax-free bank FDs, you would not be get such high returns.

Tax Free Bonds IREDA IIFCL Ennore
Tenure 10,15,20 years 10,15,20 years 10,15,20 years
Coupon Rate (Retail investors) 8.41-8.80% 8.41-8.80% 8.61-9%
Tax-effective yield 12.17-12.74% 12.17-12.74% 12.75-13.02%
Minimum application size 5,000 5,000 5,000
Interest payment Annually Annually Annually

So if you have surplus funds, which can be locked in for long period you can consider these bonds. The interest payment cycle should be kept in mind for those who are dependent on investment income alone, since the interest payouts are annual.

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