Tax-free bonds vs Bank FDs: Equity returns are expected to remain low due to rising repo rate and volatility. Hence, savings of Indian households are expected to move towards safer options like bank FDs, gold, small savings schemes etc.
Amid low interest rates on deposits and high volatility in stock markets, tax and investment experts are recommending investing in debt and liquid funds for the short term. Equity returns are expected to remain low due to rising repo rate and volatility. Hence, Indian households are expected to move towards safer options like savings bank FDs, gold, small savings schemes.
However, experts are of the opinion that tax-saving bonds and maturity plans are a better option than bank FDs for high-income individuals who are coming under the tax net. He said that bank FDs will not give more than 5 per cent returns in the short term, while tax saving bonds will give 1.5 per cent to 2 per cent more returns than the bank’s fixed deposit rates for any period.
Higher interest in tax-free bonds
According to a Live Mint report, Vikram Dalal, MD, Synergy Capital Services, said on tax-saving bonds versus bank FDs, “For high net worth individuals, I opt for tax free bonds and target maturity plans, such as Bharat Bond. Would recommend ETFs. Bank FD will give you 5.5 per cent to 5.55 per cent return and tax free bonds like Bharat Bond ETF will give returns of 7.25 per cent. Long term debt mutuals like PSU & Banking, Income or GIFT bonds can give good returns in times of rising interest rates.
Looking for safe investment options
He said that in the era of rapidly rising repo rate, investors are looking for safe investment options, as well as seeking such returns where they can manage inflation. Central PSU bonds, GoI/SDL securities and AAA rated private sector bonds are the preferred investment options.
Anand Rathi Global Finance CEO Jugal Mantri said that tax-free bonds are a better option in the rising interest rate regime. “Investors opt for debt instruments based on three basic parameters – safety of capital, liquidity and regular returns. AAA rated public sector bonds have the highest security. Once listed, it can be invested and withdrawn at any time. Also, more interest is available than FD.
