The Bombay Stock Exchange and the National Stock Exchange both list all of these bonds. You can purchase them in the same way that you would stock. For example, if you’re shopping online, you can purchase Hudco Tax-Free Bonds by just putting HUDCO into the search box, which will bring up a dropdown box with all of HUDCO’s tax-free bonds.
You can also input on the securities information to acquire information on the maturity year, interest rate, and, most crucially, the interest payment date. These bonds are available in both demat and physical form. If you buy something in physical form, you’ll have to provide your PAN.
What is the procedure for purchasing IRFC tax-free bonds?
What is the procedure for purchasing IRFC bonds?
- Draw a check in the name of IRFC Capital Gain Bonds along with the IRFC bond application form.
How do I go about purchasing tax-free bonds?
These tax-free bonds are available in both physical and demat form to investors. The subscription period for tax-free bonds is open for a limited time, and you must purchase these bonds within that time frame. If the bonds are purchased in tangible form, the investor must provide his or her Permanent Account Number (PAN).
Is the HUDCO bond tax-free?
Tax-free bonds issued by the Housing and Urban Development Corporation (HUDCO) are accessible in the secondary market for conservative investors, especially retirees, searching for capital safety.
In FY12, FY13, FY14, and FY16, HUDCO issued a total of 32 series of tax-free bonds with maturities ranging from 10 to 20 years.
Many series with higher yield-to-maturity (YTM) and liquidity are actively traded on the BSE and NSE.
Five series of HUDCO tax-free bonds, with a YTM (yield-to-maturity) of 5.4-5.9%, are actively traded on both markets, according to data collated by HDFC Securities’ retail research. The HUDCO N3 series (ISIN INE031A07832), for example, has a YTM of 5.6 percent and a coupon rate of 8.1 percent with a residual maturity of 2.5 years on the NSE.
Over the last month, the series’ daily average traded volume has been 1,120 units.
Because the interest paid on tax-free bonds is not taxable, the current yield of 5.8% equates to an 8 percent pre-tax yield for investors in the 30% tax bracket. This rate is currently greater than the rates available on bank fixed deposits.
What are the current tax-free bonds?
Are you a senior citizen, a high-net-worth individual, or someone who pays the highest tax rate and wants to invest in debt securities? If you answered yes, you should look into tax-free bonds. If you want to invest for a period of 10 years or more, HUDCO (NE series), PFC (N8 series), or IIFCL bonds are good options (N4 series). The remaining term on these bonds is 12-13 years.
If you want to invest for a shorter period of time, try REC (NI series), IREDA (N7 series), NABARD (N2 series), or HUDCO (NI series) bonds (ND series). The remaining term on these bonds is 6-10 years.
Here are a few of the best-performing Tax Free Bonds to consider. HOUSING & URBAN DEVELOPMENT CORPORATION LIMITED offers a 9.01 coupon rate, MAHINDRA & MAHINDRA FINANCIAL SERVICES LIMITED offers a 9, POWER FINANCE CORPORATION LIMITED offers an 8.92 coupon rate, INDIA INFRASTRUCTURE FINANCE COMPANY LIMITED offers an 8.91 coupon rate, and so on.
1) What are tax-free bonds, and how do they work?
Bonds that are tax-free are debt instruments that are typically issued by public sector entities (PSUs). A public sector undertaking collects funds from investors for a set period of time in exchange for issuing a tax-free bond and promising to refund the funds at the conclusion of the bond’s term. It also pledges to pay a fixed annual interest rate for the duration of the bond. On the maturity date, the corporation redeems the bond and credits the maturity proceeds to the investor’s bank account.
2) What distinguishes tax-free bonds?
- Issued at face value: These bonds are normally issued with a Rs 1000 face value. To put it another way, one unit of the tax-free bond costs Rs 1000 at the moment of issuance.
- There is a coupon rate on the bonds. Power Finance Corporation (PFC), for example, issued the N6 series of bonds at an annual interest rate of 8.43 percent. It means that bondholders will receive an annual interest rate of 8.43 percent. Interest is paid either semi-annually or annually, depending on the bond’s issuance date.
- Bonds are issued for periods of more than 5 years and can last up to 20–30 years. They can be held till maturity by an investor. These bonds can be traded on stock exchanges such as the NSE and BSE. If an investor needs money before the bonds mature, they can sell them on the stock exchange.
3) What is the tax-free status of interest earned on tax-free bonds?
The fact that the interest generated on tax-free bonds is tax-free is the most tempting feature to investors. Section 10 of the Income Tax Act makes this possible. Because the interest paid to investors is tax-free, persons in the highest tax bracket who want to invest in debt securities prefer to buy these bonds.
4) What are the dangers of tax-free bonds?
Tax-free bonds are typically issued by PSUs with the union government as the primary stakeholder. As a result, the chance of default is quite minimal. However, liquidity can be an issue. In the case of several of these bonds, trade volumes are minimal. If you want to sell them on the exchange, you can have a hard time finding a buyer. Even if you find a buyer, you may not be able to get the price you want.
5) How do you go about purchasing tax-free bonds?
There are two ways to purchase tax-free bonds. You can either apply for the bonds when the firm issues a new bond issue, or you can acquire bonds that have already been issued and are listed on the stock exchange from another bondholder who wants to sell.
You can apply for a bond in either physical or demat format when applying for a new issue. However, you’ll need a trading and demat account to buy and sell bonds on the secondary market. You must place a buy order from your trading account in order to purchase the bonds. The bonds will be credited to your demat account at the moment of clearing and settlement. Similarly, you must submit a sell order from your trading account to sell the bonds. The exchange will debit the bonds from your demat account at the moment of clearing and settlement.
If you hold the bonds until they mature, the issuing business will redeem them and credit the redemption value to your bank account.
6) What are the tax implications of tax-exempt bonds?
For tax purposes, you must understand the following phases of a bond as an investor:
- At the time of issuance: Some financial instruments are eligible for a tax deduction at the time of purchase or issuance. Please keep in mind that tax-free bonds do not qualify for any tax benefits at the time of purchase or issuance.
- Annual interest earned on the bond: Under Section 10 of the Income Tax Act, annual interest earned on tax-free bonds is tax-free. As a result, any interest you earn on these bonds is tax-free in your hands as an investor. The interest earned on these bonds is not subject to tax deducted at source (TDS).
- Capital gains: Depending on the price at which you acquired and sold the tax-free bond, you will either have a capital gain or a capital loss if you sell it before it matures. The capital gain will also be classed as either a short-term or long-term capital gain, depending on the bond’s holding period. If you generate capital gains from a tax-free bond, they are taxable, whether they are short-term or long-term.
- Maturity proceeds: If you hold the bond until it matures, the corporation will redeem it at face value (the price at which you bought the bond from the company). As a result, there will be no capital gain when the bond is redeemed at maturity. There will be no capital gain tax since there will be no capital gain.
7) Who should buy tax-exempt bonds?
Tax-free bonds are a good option for investors looking for debt instruments with tax-free interest income. Tax-free bonds are an option for senior citizens, high net worth individuals (HNIs), and others in the highest income tax bracket. These bonds typically have a long term of more than five years, ensuring a steady, tax-free income for a long time.
Tax-free bonds are more tax-efficient than bank fixed deposits from the standpoint of taxes. The interest on a bank fixed deposit is taxable, but the interest on tax-free bonds is not.
8) What corporations are known for issuing tax-free bonds?
9) What considerations should an investor make while purchasing bonds on the secondary market?
The face value of the bonds issued by the corporation differs from the price at which they are exchanged in the secondary market. The market price of a bond is determined by the change of market interest rates after the bond has been issued.
Interest rates and bond prices are inversely related. As a result, if market interest rates rise, bond prices will fall. Bond prices will climb if market interest rates fall. No new tax-free bonds were issued by any company in the current year (2021) or the previous year (2020). In addition, following the economic impact of COVID-19, the RBI has decreased interest rates in FY 2020-21. As interest rates fall, the market prices of all bonds issued prior to 2020 have risen.
All tax-free bonds with a face value of Rs 1000 issued before 2020 are selling at a market price ranging from Rs 1085 to Rs 1500 as of July 2021. The market price is determined by criteria such as when the bond was issued, the coupon rate at which it was issued, the remaining time to maturity, the seller’s price forecast, and so on. So, when purchasing tax-free bonds on the secondary market, bear the following considerations in mind.
When you buy tax-free bonds on the secondary market, you will be paid annual interest based on the coupon rate. Your real return, however, will be determined by the market price at which you purchased the bond.
For example, REC Limited issued a Rs 1000 tax-free bond (NH series) with a coupon rate of 7.43 percent per annum. Assume you purchased the bond at a market price of Rs 1325 in July 2021. The corporation would pay you Rs 74.3 in annual interest (7.43 percent p.a. on the face value of Rs 1000). However, you must consider a return of Rs 74.3 on a Rs 1325 investment when computing your actual yearly return (bond market price). As a result, your annual return will be 5.61 percent.
10) The majority of tax-free bonds are now selling at a discount to their face value. Will this be the case in the future as well?
The RBI slashed interest rates to multi-year lows in FY 2020-21 to aid the Indian economy’s recovery from the COVID-19-induced recession. Most bonds’ prices have risen as a result of the interest rate cut, and they now trade at a premium to their face value.
Interest rates appear to have reached a nadir in July 2021. Since the last few months, the RBI has kept interest rates unchanged. The RBI is expected to normalize liquidity in the future before gradually raising interest rates. Bond prices are predicted to fall as interest rates rise due to their inverse relationship with interest rates.
The bond’s market price will fall below the face value of Rs 1000 once market interest rates exceed the coupon rate at which it was issued. The bond is considered to be selling at a discount to the face value when the market price falls below the face value.
What is the procedure for purchasing NHAI bonds?
These Capital Gain bonds can be purchased directly the NHAI/REC or from registered bond dealers. There is no way to buy these bonds online, so you’ll have to go to their office and fill out a paper form.
Where can I get tax-free NHAI bonds?
The latest primary issuance of tax-free bonds was by the Government of India in 2015, and there have been no additional issues since then.
As a result, investors are practically limited to purchasing these bonds only on the secondary market. As a result, they can be traded on the NSE/BSE.
Any retail investor with a current trading/Demat account can purchase the bond from the exchange like an equity stock, depending on availability.
- When a corporation distributes bonds to the general public, investors can apply online or offline to subscribe.
You’ll need to submit an updated application form, either online or offline, together with the necessary papers and a check or demand draft for the amount you want to invest.
More than 20 nationalized banks can assist you in purchasing these bonds.
You will receive the bond and the Certificate of Holding in your BLA (Bond Ledger Account) once you have invested.
- The stock market is where investors can buy and sell these bonds. However, while the interest on these bonds is tax-free, any capital gain from a secondary market sale is.
Short-term capital gains (STCGs) from the selling of tax-free bonds on exchanges are taxed at the regular rate.
Long-Term Capital Gains (LTCGs) are taxed at a rate of 10% without indexation (i.e. indexation is a mechanism employed by investors to avoid tax loss on investments) or 20% with indexation, whichever is lower.
Which investment is the best for senior citizens?
It is one of the most popular and well-liked retirement plans in India. It’s a good scheme for retirees because it provides security and a steady income with no risk. In addition, the 7.4 percent annual interest rate it gives is among the best in the industry. This position can only be held for a maximum of 5 years. The scheme is supported by the Government of India (GOI), making it a secure place to put your money. The GOI first implemented it in August 2004, with senior citizens at the forefront.