Best Tax Free Bonds available in the stock market to invest now-Feb-2014
When NHB Tax free bonds got subscribed within 1 day of opening, many of us got disappointed. However, all these tax free bonds are listed on BSE or NSE and some of them are trading at lower prices than the bond price. Are there any best tax free bonds in India which are available in open stock market to invest now? I have analyzed a few tax free bonds, which provide good returns in the long run and are tax free and available at either cheap price which can provide you high returns compared to other investment options. This post is based on several requests from readers on various articles stating to write good tax free bonds which can be purchased from stock market.
Also Read: 8.8% – IREDA Tax Free Bonds of Feb/Mar-2014
What parameters I have used these to choose these best tax free bonds in India?
Based on returns:
The returns are based on what you are getting Vs what you have invested. E.g. If a bond price is Rs 1,000 @ coupon rate of 8.83%. If this bond is currently available for Rs 981, your return is not 8.83%, it is 9%. You need not regret that you have not invested in NHB tax free bond as low priced bonds also can provide you similar return.
Rating:
Bonds which are rated AA+ and above are considered here, which indicates highest safety. Though these companies are Govt enterprises, the rating pertains to the company which issued tax free bonds, which indicates the ability of the company to pay principal and interest.
Best Tax Free Bonds available in the stock market to invest now
1) IIFC Tax free bond Code
Bond Name/Code – IIFCL TR2 SR-3A 8.66 22JN34 1K
This bond is CAREAAA / ICRA AAA rated bond and maturity date is 22-Jan-2034. This tax free bond price is Rs 1,000 @ coupon rate of 8.66% is available in the market at cheap rate of Rs 964 per bond. Means if you invest at this price, you can get 8.98% tax free interest. I would explain this with an example. If you buy 10 bonds @ Rs 964, your investment amount is Rs 9,640. However, your tax free returns are 8.66% on Rs 10,000 bond price which comes to Rs 866. Means for your investment of Rs 9,640, you are getting Rs 964 tax free return which comes to 8.98%.
2) HUDCO tax free bond
Bond Name/Code – HUDCO SR-2B TR2 8.83 13JN29 1K
This bond is CAREAA+ / IND AA+ rated bond and maturity date is 13-Jan-29. This tax free bond price is Rs 1,000 @ coupon rate of 8.83% is available in the market at Rs 999 per bond. Means if you invest at this price, you can get 9% tax free interest. If you buy 10 bonds @ Rs 999, your investment amount is Rs 9,990. However, your tax free returns are 8.83% on Rs 10,000 bond price which comes to Rs 883. Means for your investment of Rs 9,990, you are getting Rs 883 tax free return which comes to 8.84%.
3) NHAI N34 series tax free bond
Bond Name/Code – NHAI SR IIB 8.75 05FB29 FV1000
This bond is CAREAAA / ICRA AAA rated bond. This tax free bond price is Rs 1,000 @ coupon rate of 8.75% is available in the market at Rs 995 per bond. Means if you invest at this price, you can get 8.79% tax free interest. If you buy 10 bonds @ Rs 995, your investment amount is Rs 9,950. However, your returns are 8.75% on Rs 10,000 bond price which comes to Rs 875. Means for your investment of Rs 9,950, you are getting Rs 995 tax free return which comes to 8.79%.
4) IRFC tax free bond series tax free bond
Bond Name/Code – IRFC SR 87 6.88% LOA 23MR23
This bond is Crisil AAA / ICRA AAA rated bond. This tax free bond price is Rs 1,000 @ coupon rate of 6.88% is available in the market at cheap rate of Rs 784 per bond. Means if you invest at this price, you can get 6.88% tax free interest. If you buy 10 bonds @ Rs 784, your investment amount is Rs 7,840. However, your returns are 6.88% on Rs 10,000 bond price which comes to Rs 688. Means for your investment of Rs 7,840, you are getting Rs 688 tax free return which comes to 8.77%.
5) NHB tax free bond N34 series tax free bond:
Bond Name/Code – NHB TR1 SR-3B 9.01 13JN34 FV5K
This bond is Crisil AAA / CARE AAA rated bond. This tax free bond price is Rs 5,000 per bond @ coupon rate of 9.01% is available in market at little higher price of Rs 5,178 per bond. Means if you invest at this price, you can get 9.01% tax free interest. If you buy 2 bonds @ Rs 5,178 your investment amount is Rs 10,356. However, your returns are 9.01% on Rs 10,356 bond price which comes to Rs 901. Means for your investment of Rs 10,356, you are getting Rs 901 tax free return which comes to 8.70%.
Quick summary about these 5 bonds
Also Read: Invest in Top Tax Saving FD Schemes for saving tax u/s 80C
What is the risk involved in buying these bonds are discounted prices or at this current market price?
Now the question comes to your mind is whether there is any risk involved. Yes, these bonds are traded on the stock exchange and their bond price can fluctuate based on the demand. Demand is based on the interest rate fluctuations. RBI Repo rate reduction can increase the bond prices. There is no harm if you invest and redeem at maturity. However, if you want to redeem before maturity, you may not get the value at which you purchased. You may need to sell them at lower prices.
Conclusion: You need not regret that you have not purchased good bonds like NHB. The above best tax free bonds can provide good returns in long run, which are tax free. If you are in a high tax bracket and want to make good tax free money, you should invest in above bonds.
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Suresh
Best Tax Free Bonds available in the stock market to invest now
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This is almost 5 Yrs old Article. Please update the same with current day Tax-Free Bonds (minimum 10 Top Rated in nos.) with keeping in mind mainly Yield To Maturity, more is always better, & remaining Years till Maturity, longer is better, as Risk Factors such as Credit Default or Interest Default is tend to Zero in case of Tax-Free Bonds as Pedigree of Bonds Issuing Companies are quite solid & they are backed by Govt. of India.
How to buy tax free bonds from market?
Hello Rakesh, You can login to your demat account to buy these tax free bonds from secondary market. You can check with customer support of your demat account where you are investing if you are not able to find link
Thanks Mr. Suresh. I will check my Demat account & will contact CS if needed.
great
Dear sir
Can you update the above tax free bond article & examples for FEB2016. Also the interest payment dates for the bonds recommended.
Can investor ask for & get hard copy ,printed copy for investment made for his files as all people are not computer savy/have acess to a p.c.What is best way to store hem ,as they are long term investments
Kindly copy updates to my mail ID karve76@yahoo.com
dear sir,
i would really appreciate if you can answer my query.
i am interested in buying tax free bonds that are currently listed on nse.
1). what is the differnce bw two below mentioned bonds as they both have a different bond type (tax free and regular)
ISIN INE020B07GY2 Issue Description BOND 6.88% PA Tax Free S1 Bond Type Tax Free
AND
ISIN INE020B07HS2 Issue Description BOND 8.71% Tax Free S2B Bond Type Regular
2). are these bonds listed on bse as well as nse? from where should i buy?
3). what will happen if i keep these bonds in my demat till maturity? i mean how will these bonds redeem?
thanks and regards,
Ankush
+919888 66 7137
Where do we find intrest paymenst dates for this kind of tax free Bonds. manherdesai@gmail.com
It would be listed on prospectus Manher. Keep visiting our blog, I would provide necessary links where you can check them
IIFCL TR2 SR-1B 8.66 22JN24 1K I would like to know which company is this ? Tax Free Bonds listed in market. Current yield is approximately 7.85 %. I would like to know more about this company in order to buy this bonds from market.
Hi sir, any update on best tax free bonds to invest in Nov / Dec 2014.
Thanks
Hi suresh very good article, any update on best available tax free bonds now in Nov/ Dec from secondary/ open market. Any news on new IPO of tax free bonds likely end of this FY.
Thanks in advance
Would provide in coming weeks
dear sir,
what is the condition for income tax (when i sell this bond with in one year) and which is the best bond for now
thank you
regards
Dear Sir,
If Mr. X buy the tax free bond from market at discounted price and he die after 2 years, the nominee will able to encash the bond immediately or he has to wait up to maturity.
Rajpal, I am not sure how this would work.
Hi, If I buy tax free bonds few weeks before record date or interest payout date , will I get full years's return or nothing for that year?
Hi Sabir, if you buy before record date, you would get complete interest. It depends on whether it is quarterly optoin or yearly option
Hi Suresh,
Could you please write an update on tax free bonds. Is there anything listed to come out in 2nd half of 2014? If not what are the best bonds available in secondary markets now?
Bhanu Prakash G
Hi /Bhanu, To early to predict. But in last 3 years of my experience, IFCI, HDFC, REC etc. keep issuing tax free bonds every year.
I did not understand the relationship between movement of bond prices and repo rate. According to me if the repo rates go down, the rates on bank FDs and other instruments will also go down and as a result, the return from the bonds at the same coupon rate will be more attractive and hence it should push the price of the bond to a higher value.
Hence, in my view, if the repo rate is reduce the bond prices should actually go up.
Please let me know if my understanding is correct.
Gaurav, Thanks for the query. You are correct. There was an error where it should have been indicated as “Increase”. I have corrected it. Thanks.
Hi,
My Query is about maturity value.
Example: I purchased 100 NHB Bonds at the value of INR 1000 each (total investment INR 100000) . since its value fluctuates in open market so in case at the time of maturity after 10 years if its market value is INR 900 each then would I receive INR 90000 or the complete amount i.e. INR 100000
Shyam, During maturity these bonds would get surrendered to the companies and company would pay bond price i.e. Rs 100,000 (full amount). You need to worry only when you want to sell in open market before maturity as company would not get involved in such transactions. Price can fluctuate and you would get lesser amounts.
Thanks Suresh for this article. This was one of my frequent queries on lots of your tax free bonds articles. Appreciate it.
However the return wil not be as per my calculations above because i dont know the date of issue of the bond and i have assumed that it was 60 days back but for exact calculation we need to count the days exactly.
For IIFCL bond tranche 2 series3(20yr 8.66% 1000rs) date of issue was 22jan and LTP as per your chart on 14 feb was 964Rs means 24days extra interest(From 22jan to 14 feb).For this particular bond,date of payment of interest was decided to be yearly on date of issue i.e 22jan every year.
This extra interest on 24 days works out to be 5.69 Rs.
So my cost price of bond is 964-5.69=958.31
I am earning 86.6Rs/yr/bond.
So yield will be 86.6*100/958.31=9.04%
I have one doubt thou.This particular bond was IIFCL tranche 2 series 3(20yr) was issued to retail invester at 8.91% and it was issued to non retail invester at 8.66%.So if a Retail invester buys it from open market than would he be paid 8.91% or not?
I am asking this because in vice versa condition i.e Retail invester selling to Non Retail investor in open market,rate of interest will decrease from 8.91 to 8.66% that is certain.
If it is so than rate of return will be 89.1*100/958.31=9.3% !!!!!!!!!!!
It is too good to be true…
Sir,
There is some mistake in calculation of bond yield i feel.
For example, if i am buying a bond of NHAI 15yr 8.75% 1000RS which was issued 60days back(assuming) and i am buying today whose date of payment of interest is 15march every year.
I will get the interest of last 60days in addition to time period i am holding which is payable to me on march15.
So i will earn EXTRA interest of 60days(1000*8.75*60/365 divided by 100 =14.38Rs)
PLUS interest earned during my holding period which is as per your calculations.
So if today i am getting the bond at 995.18,i will subtract 14.38(interest accumulated) to get my bond cost price
995.18-14.38=Rs 980.8/bond
I will be earning Rs 87.5/yr/bond
So return will be 87.5*100/980.8 which is 8.92% and not 8.79%.
Kindly correct me if wrong.
Nirav, The computation is plain and simple. You would get highre return for first year based on date of interest which I ignored as it is only for 1st year. You would not get this from 2nd year onwards 🙂
Hi Suresh,
There is a small point which is useful which I would like to add.
For example, if you buy the IIFCL bond dated 22 June now (February), you will be getting your first installment interest on 22-June-14. You will get the full year interest by investing only for 4 months. So, you will be getting 27 % annualised interest (only in the first year). This increased interest in the first year will improve your overall yield slighly.
Arun
Thanks Arun for adding this point. Yes it would be only for first year and you would not get such benefit every year. But this would add to your returns 🙂