Bonds & Securities
What are Debt Mutual Funds?
There are different types of Mutual Funds that invest in various securities, depending on their investment strategy.
Debt Mutual Funds mainly invest in a mix of debt or fixed income securities such as Treasury Bills, Government Securities, Corporate Bonds, Money Market instruments and other debt securities of different time horizons. Generally, debt securities have a fixed maturity date & pay a fixed rate of interest.
The returns of a debt mutual fund comprises of -
- Interest income
- Capital appreciation / depreciation in the value of the security due to changes in market dynamics
Debt securities are also assigned a 'credit rating', which helps assess the ability of the issuer of the securities / bonds to pay back their debt, over a certain period of time. These ratings are issued by independent rating organisations such as CARE, CRISIL, FITCH, Brickwork and ICRA. Ratings are one amongst various criteria used by Fund houses to evaluate the credit worthiness of issuers of fixed income securities.
Tax Free Bonds Section 54EC
| Sr. No. |
Bond name | Investor Type | Coupon Rate p.a.(%) | Min Investment Amt (₹.) | Face Value (₹.) | Tenure | Tax Benefit |
|---|---|---|---|---|---|---|---|
| 1 | Rural Electrification Corporation Limited | Individual, Non-Individuals & Institutions | 5.25 | 20,000 | 10,000 | 5 years | Section 54 EC Capital Gain Tax Exemption Bonds of Income Tax Act 1961 |
| 2 | Indian Railway Finance Corporation Limited | Individual, Non-Individuals & Institutions | 5.25 | 20,000 | 10,000 | 5 years | Section 54 EC Capital Gain Tax Exemption Bonds of Income Tax Act 1961 |
| 3 | Power Finance Corporation Limited | Individual, Non-Individuals & Institutions | 5.25 | 20,000 | 10,000 | 5 years | Section 54 EC Capital Gain Tax Exemption Bonds of Income Tax Act 1961 |
Features & Benefits of Tax free bonds
- Lock in period of 5 years.
- Money cannot be withdrawn before the expiry of application.
- Kong tern Capital gain.
Tax Free Bonds
Public undertakings issue fixed-income securities. These are known as tax-free bonds. The interest received is tax-free, allowing investors to increase their savings. The principal amount is payable upon maturity, similar to other bonds. These bonds typically have maturities between 10 and 20 years, and their interest rates are usually lower than those offered by other fixed-income investment options.
List of Tax-free Bonds
Find the tax-free bonds list 2023 below, along with their details:
| Issuer | Symol | Face Value | Coupen rate | Residual Maturity(yr) | Yield to Maturity(%) | CMP As on 09-08-2023 |
Pre Tax Return(%) (31.2% Income tax bracket) |
Pre Tax Return(%) (42.7% Income tax bracket) |
|---|---|---|---|---|---|---|---|---|
| NHAI | NHAI NE | 1000 | 7.69 | 10.40 | 4.90 | 1192.65 | 7.12 | 8.55 |
| IRFC | IRFC NJ | 1000 | 7.53 | 10.20 | 4.82 | 1175.00 | 7.01 | 8.41 |
| REC | RECLTDN9 | 1000 | 8.71 | 8.00 | 4.82 | 1224.99 | 7.01 | 8.41 |
| NHAI | NHAI NA | 1000 | 7.60 | 10.20 | 4.63 | 1158.70 | 6.73 | 8.08 |
| PFC | PFCN8 | 1000 | 8.92 | 13.10 | 4.63 | 1356.00 | 6.73 | 8.08 |
| HUDCO | HUDCON2 | 1000 | 8.20 | 6.40 | 4.59 | 1129.00 | 6.67 | 8.01 |
| NHAI | NHAINZ | 1000 | 8.30 | 6.30 | 4.13 | 1164.73 | 6.00 | 7.21 |
Features & Benefits of Tax free bonds
- Higher profit for higher tax limit
- Stable income
- Tax-free bonds typically varies from 5.50% to 7.50%
- Tax-free bonds have low liquidity
