Bonds & Corporate FD’s
A bond can be defined as a debt investment, wherein money is loaned by an investor to a corporate or government entity, which borrows the funds for a specified time-frame at a variable or fixed interest rate. Companies, Municipalities, States and Sovereign Governments use the bond route to raise money and finance several projects and activities. Bond owners are debt holders or creditors of the issuer.
Capital Gain Bonds
As per provisions of Income Tax Act, 1961, any long term capital gains arising from transfer of any capital asset would be exempt from tax under section 54EC of the Act if:
The entire capital gain realized is invested within 6 months of the date of transfer in eligible bonds
Such investment is held for 3 years
To avail of capital gain exemption, the bonds so acquired cannot be transferred or converted into money or any loan or advance can be taken on security of such bond within 3 years from date of acquisition else, the benefit would be withdrawn
If the amount invested in bonds is less than the capital gains realized, only proportionate capital gains would be exempt from tax.
The eligible bonds under Section 54 EC are RECL (Rural Electrification Corporation Ltd) and NHAI (National Highways Authority of India).
The maximum investment limit amount is Rs. 50 Lakhs.
The block period for the investment of these two companies is 3 years.
100% risk free investment
Capital Gain be saved Under Sec 54EC or Sec 54F, if the land or property sold is non-agriculture. We deal in such bonds which qualify for Sec 54EC Bonds.
Tax can be saved under Section 54 EC by investing in bonds
Tax can be saved under Section 54 F by investment in New residential house
Rural Electrification Corporation Limited (REC) & National Highways Authority of India (NHAI) are permitted to issue capital gains bonds under Section 54 EC.
NHAI Capital Gain Bonds Series XII
The National Highways Authority of India(NHAI) is responsible for the development, maintenance and management of National Highways entrusted to it and for matters connected or incidental there to.
An investment avenue in which an investor loans money to an entity (government or corporate) that borrows funds for a defined period of time at a fixed interest rate. Bond market has not attracted retail investors to it. But in recent times, lackluster equity markets and low rate of interest have attracted retail investors towards bonds issued by corporate.
Advantage: the rate of interest is high.
Disadvantage: no security, interest earned is taxable. So before investing in bonds do check the credibility of the company offering the bond and past record of the company.
8% RBI bonds
Bonds as issued by the Reserve Bank Of India (RBI). The rate of interest offered is 8 per cent, payable half yearly with cumulative and non-cumulative option available. Tenure is six years.
Advantages: safety, guaranteed return.
Disadvantage: interest is taxable.
Retail investors have not tapped this investment avenue as much as others. It is good for investors looking for reasonable returns with no risk of default as the securities the Government offers these securities. These securities can be held in a demat format. The market is limited so liquidity can be a problem. Investors need to have a thorough knowledge of this investment format to invest in them. Well, then if you are the one who prefer the comforts of safety to the greed of high returns all the above debt instruments are yours to invest in.
The 8% Government of India Savings (taxable) bonds, 2003 is a bond issued by the Reserve Bank of India (RBI) commencing April 21, 2003.
Since bonds are issued on behalf of the Government of India, it is the safest investment any investor can look for. However, interest on the bonds is taxable and it has a lock in of six years, which makes the bond less favourable over other investment options.
A perpetual bond is a financial instrument with no maturity date. For the issuer of these bonds, these become quasi equity, something that they need not repay as there is no maturity date.
The investor or the bond holder will get a fixed interest every year. Since the bonds have no maturity, the investor has to exit through secondary debt market in case of need.