PM Modi/Tax Saving Bond: PM Modi has invested around 20 thousand rupees in tax savings bonds. He has invested his money in L&T Infrastructure Bond (Tax Saving). Apart from this, they also have investments in savings accounts, FD and NSC. Currently, tax saving bonds are also considered a safe option for investment. It provides simple but safe returns. This is a better option for those investors who want some better returns from options like FD or RD from the market with very low risk. Where you can take tax benefit on the money deposited in it, your money also increases in the long term.
Separate from tax-free bonds
Bonds are also included in your investment options. Instead of investing money directly in the stock market, it is considered safer to invest in bonds. There are tax-free bonds and tax saving bonds in the 2 popular categories of bonds. Many people understand them as one, but both of them are different.
In the case of tax saving bonds, the tax benefit is received on the principal amount under Section 80CCF of the Income Tax Act, which is invested in these bonds. Under this, the investor gets the benefit of a tax deduction on investments up to Rs 20,000. Therefore, in a financial year, taxpayers can reduce Rs 20,000 from their total taxable income.
On the other hand, the interest income in tax-free bonds is completely tax-free. You do not have to pay any tax on the income received on investment in these bonds, while the interest of tax saving bonds is taxed.
Tax Saving Bond: Lock-in Period
The lock-in period on tax-saving bonds is usually at least 5 years old. At the same time, some have more lock-in periods. It is clear that it encourages mid-term to long-term investment.
Better for what
Tax-free bonds are considered better for those investors who do not want to take too much risk in the market. This is better for Conservative investors who get safe returns at a lower risk. However, the returns are slightly higher than tax-free bonds. The advantage of this is that their paper quality and rating are better than other bonds. They get stable but safe returns.
In the case of tax saving bonds, you get more liquidity. You can sell them when the price increases because they trade on the exchange. The interest rate on tax-saving bonds is based on the current rates of government securities. Currently, this rate is attractive compared to bank FD.
Features: Tax Saving Bond
- This is a low-risk investment option. Better for those who have started investing immediately.
- In this, investors can choose the cumulative and non-cumulative options.
- Interest rates are attractive compared to small savings schemes.
- There is no maximum limit for investment.
- The maturity period of the bond can be extended further.
- Liquidity is a better option than trading on the exchange.
- Returns from 5 years of lock-in period can be better.
- Through this, you can avail tax deduction up to Rs 20 thousand in a financial year.
- It is a good option for mid to long term investors.
(Note: Also based on a conversation with BNP Fincap Director AK Nigam)