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Saturday, July 2, 2011

Tax exempt bonds-New flavour in the market


About half a dozen of state-run  companies like IRFC (Indian Railway Finance Corporation), NHAI (National Highway Authority of India) and HUDCO (Housing and Urban Development Corporation) are ready to hit the market with their tax-exempt bonds in coming months.
Interest earned on these bonds shall be completely tax free.Coupon rate of such bonds shall be in the range of 7.5-8%.
What makes these bonds special?
These bonds are really a boon for investors who fall in the top income tax bracket of 30 % and return on these bonds would be equivalent to pre-tax return of 11.5-12 %.
These bonds are not viable for investors falling in lowest tax bracket or income tax exemption limit.Low tax bracket investors shall be better with high coupon rate instruments like NCDs even after paying the applicable income tax.

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