Tax Free Bonds

Features of Tax Free Bonds

The rise of up to 7.26% in India’s 10-year g-sec yields in recent months has led to a ripple effect in tax-free bonds.

Tax Exempt Interest Income

The interest earned on Tax-Free Bonds is not taxable. However, capital gains earned from the sale of these bonds in the secondary market are taxed as per the income tax slab that the investor falls in.

Safe and Secure Investment Option

Tax Free Bonds are issued by Government backed entities and enjoy the minimal risk of default.

Highly Liquid

An investor can easily trade their Tax-Free Bonds in the secondary market and liquidate their holdings.

Beneficial for High-Income Investors

Since the interest earned on tax free bonds for senior citizens or regular investors is non-taxable, they prove to be a more profitable investment option as compared to fixed deposits, where the interest earned is taxable.

Benefits of Investing in Tax Free Bonds

• Steady Income Source: Tax Free Bonds assure the investor of a reliable income stream in the form of interest credited to the investor at a certain point in time.
• Safe Investment: Tax-Free Bonds are considered rather safe with minimal credit risk, as they are either issued by financially stable institutions or the government, which makes them less susceptible to default.
• High Liquidity: Tax-Free Bonds allow the investor to trade them freely in the stock exchange in order to make the most of any market appreciation.
• No Upper Investment Limit: Since there is no upper limit for investments in Tax Free Bonds, these bonds prove to be exceptionally useful for high-net-worth individuals falling in the tax bracket of 30% or more. Such individuals can invest more to earn greater returns and increased tax exemption.

Credit Rating of Tax Free Bonds

Since Tax Free Bonds are issued and backed by the Government, they carry the highest credit rating. This implies that Tax-Free Bonds are largely safe to invest in and carry minimal risk.

Get a better understanding of how credit ratings work from the following list.

• AAA: highest degree of safety, lowest credit risk

• AA-, AA, AA+: high degree of safety, very low credit risk

• A-, A, A+: adequate degree of safety, low credit risk

• BBB-, BBB, BBB+ : Moderate degree of safety, moderate credit risk

• BB: Moderate risk of default

• B-, B, B+: high risk of default

• C: very high risk of default

• D: In default or expected to be in default

How to Invest in Tax Free Bonds

To invest in Tax Free Bonds with GoldenPi, all you need to do is follow these three steps -

• Sign up

  Register for an account on GoldenPi.

• Select a Government Bond

  Choose from a wide variety of Tax-Free Bonds on GoldenPi to invest in.

• Monitor your Investment

  Keep track of your investment and receive notifications when it matures.

Please Note - An investor needs to furnish his/her Permanent Account Number (PAN), if the bonds are purchased in the physical format.