What Are The Best Investment Options?

By Author: Maithili Pawar
Total Articles: 30
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If you are looking for a safe place to park your funds in, here's good news for you: invest in tax-free bonds and earn interest every year on your funds. Better news: interest earned on your bond is entirely tax-free.

In India, tax-free bonds security is issued by a corporation, financial institution, or government. Thus, these bonds are a safe option for investment.

Before maturity, you can also sell the bonds at market price as they are listed on the Bombay and National Stock Exchanges.

Features of tax-free bonds

• Interest: The interest on those bonds is earned annually, and the central government determines it.
All interest earned is tax-exempt.
• Tenure: Tax-free government bonds usually come as long-term instruments for investment. Depending on your criteria, you can invest in these bonds for up to 10, 15 or 20 years.
• Liquidity: These bonds can be traded at any time, as per the current market rate. Any profits from selling these bonds will, however, be taxed under the IT Act.
• Form: These bonds may be preserved intangible bonds or dematerialized bonds. So, you can choose to purchase using your Demat account or buy directly.

Advantages of tax-free government bonds

The tax-free benefits go beyond making such bonds give you tax-exempt interest. Here is why you should invest in government bonds which are tax-free government bonds:

• Guaranteed income: Every year, the interest you earn on those bonds is guaranteed. Every year, apart from the principal who will be returned to you upon maturity, you stand to earn tax-free income. Only Indian nationals and the Hindu Unified Family can buy those bonds.
• Safety: These bonds are backed by India's government, which means the default chances are low. Even if a company from which you bought bonds goes bankrupt, its assets are liquidated. You will be getting back your investments as bondholders.
• Simple trade: Such bonds are stock market listed. So, when the prices appreciate you can sell your bonds at the market price. In any market appreciation, you stand to benefit.

What are NCDs?

non convertible debentures is a financial instrument allotted by Corporates to raise resources/funds through public issue or private placement for a specified tenure. It is impossible to convert that debt instrument into equity. It is a fixed income instrument identical to a fixed deposit from a bank and can be traded on stock exchanges. Interest earned monthly, quarterly, and annually is payable to the debenture holder on principal maturity amount.

If one is looking for an investment that periodically generates fixed income, NCDs can be the ideal investment it offers.

• Higher interest rates compared to fixed deposits, postal savings, or similar investments.
• If the bonds are listed, liquidity as one can sell before their maturity on the secondary market.

Author bio: Maithili Pawar is a financial expert with 5-plus years of experience in investment banking. In her free time, she writes on the latest trends in trading. In this, she has explained everything about the tax-free bonds and listed it as one of the best investment options