December 1, 2011 8:24 pm
Currently there are many infrastructure bonds which can help in saving tax on 20K amount. Which is better among those – LnT, IDFC, IIFCL, IDBI or any other one.
Dear Srinivasrao, the answer lies in the ratings assigned to the bonds. Please check the ratings of individual bonds.
Dear Srinivasrao, Opt either IDFC or L&T.
can u please clarify why only IDFC or L&T
Dear Justgrowmymoney, My basic point was – the person in lower tax slab is already earning lower (that’s why it’s lower tax slab for the person) so it make sense to go for a product with a higher degree of risk but with a possibility of earning high returns also.
well said ashal
I am in 30% slab and it is the time to purchase infra bond, hence can u suggest the best infra bond available. And also please clarify the difference between secured and un secured bonds. Can i purchase SREI infra bond as it is secured and giving hoghest intrest rate
Dear Justgrowmymoney, My take for bonds not good for low tax slabs – The persons who are in lower tax slabs are already earning less, hence for them it make sense to to invest in a balanced fund (I’m not advocating pure Eq, fund) for the 10Y period to get a kick in return.
There is more to it – the 10% or 20% slab person, w’d have to pay higher tax at the time of maturity after 10Y or after 5Y if put option is exercised as due to salary hike during all these years, the over all income ‘ll shift to higher tax slab. For 30% tax slab person as S/he is already in highest tax slab, the more income ‘ll not create any such problem.
The debt is already in everybody’s portfolio from PF, PPF, Bank FDs.
Ashal – The person in 10% and 20% bracket today, investing in Bank FDs long term or on a rolling basis will move to the highest tax bracket in future. What I was saying is a Bond must be compared with another DEBT instrument for return and never with a MF because anyday a diversified MF will yield more than a bond in the long term.
Dear Vinay, one may purchase & hold in physical mode also. Demat mode is not compulsory.
Yes U will purchase IDFC, LNT bonds without the DEMAT account. But After 5 Yrs. Lock Period if u wants to sell them by Stock Exchange then it makes sense to take it in Demat Format. Otherwise If u don’t have the DEMAT account then for this reason don’t open DEMAT Account.
And Dear Ashal u mentions a very good point. U r guidance is always helpful for us.
Thank for information.
Dear Vinay, in addition to what dear Parag has already told you, my take – if you fall into 30% tax slab then only it make sense to purchase these bonds. For person in 10 or 20% tax slab, it make sense to pay tax & invest the remaining amount in a balanced fund like HDFC Prudence for next 10Y. Please do remember, the interest from these bonds is also taxable, hence the net yield from these bonds is very poor for 10& 20% tax slab.
Ashal – Any day a good diversified Equity based MF will beat a Bond. Bonds must be thought of in the context of overall portfolio diversification – as you will appreciate, an all Equity portfolio is not recommended for a significant number of the population. With this reference a Bond must be compared with similar debt instruments – like for example: The question people should ask themselves is: Is there a better debt instrument, say Bank FD, that I can invest that will beat the return of the Bond (with tax saving)?
Thus by pure numbers your recommendation that the bond is not a good addition to 10%, 20% tax bracket people is absolutely correct (they can pump in MF). However from an overall portfolio diversification perspective the bonds may be suitable for everyone as there does not appear to be debt investment avenues that will better the bond.
Issue of IFCI and PEC company’s now closed. Issue of IDFC, LNT are still open.
IDFC and LNT both provides 9% Annual interest (Fixed).
Both have the lock period of 5 yrs, Buy Back option is available in both bonds.
Face Value of each IDFC bond is 5000 Rs. i.e for 20 K u can purchase 4 bonds.
Face value of each LNT bond is 1000 Rs. i.e for 20 K u can purchase 20 bonds.
In Dec, Jan may be 1 or 2 company will open infra issue.
Dear Parag and Ashal,
Thanks for the reply.
Yes I am looking to save some tax for the 30% slab.
One more question: Can these bonds can be bought without the Demat account?
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