Investment Bonds are debt instruments in which the authorized issuer owes the bond holders a debt. Depending on the terms of the type of bonds, the authorized issuer is obliged to pay interest and/or repay the principal at a later date upon maturity. In simpler terms, a bond is a formal contract to repay borrowed money with an interest at fixed intervals. Investment bonds are a way to raise money. When you purchase any type of bond (government, convertible, callable, etc.), you are lending money to the issuer which may be a corporation, the government, a federal agency or any other entity. In return, the issuer promises to pay a specified rate of interest during the life of the bond. The issuer also repays the face value of the bond when upon maturity of the term.
Learn about different types of bonds and find suggestions for best bonds to invest in!
ZERO-COUPON BONDS
These investment bonds are issued at a discount, but redeemed at the principal
G-SEC BONDS
These are issued by the government and are one of the safest types of bonds to invest in.
CORPORATE BONDS
These types of bonds are simple bonds, wherein a company borrows and pays
INFLATION-LINKED BONDS
In these types of bonds, principal amount and interest payments are indexed.
CONVERTIBLE BONDS
The bond holder has the option to convert these types of bond into equity on pre-
Sovereign Gold Bond
Sovereign Gold Bonds are the safest way to buy digital Gold, as they are issued by
RBI Bond
The Government of India decided to issue 7.75% Savings (Taxable) Bonds, 2018
You capital is protected as investment bonds are a less risky investment option.
Although lower as compared to equity, returns on investment bonds are assured.
Tax Free investment bonds are one of the best options for you if you fall in the higher tax bracket.
Here is a list of top tax free government and private bonds running in the market. Each of them gives information about coupon rate, last traded price, etc.
The income by way of interest on these Bonds is fully exempt from Income Tax and shall not form part of Total Income as per provisions under section 10 (15) (iv) (h) of I.T. Act, 1961. These bonds are generally issued by Government Backed entities and thus have very low default risk.
A bond, in simple terms is a document which promises the holder certain rewards and benefits in return for an investment. It consists of an Issuer, the agency which provides these bonds and an owner, the person under whose name such bonds exists. Tax Saving Bonds, as the name indicates are bonds which help people save tax. These bonds offer certain special tax benefits to owners, helping them save a certain portion of their overall tax. Individuals can purchase these bonds and earn a certain interest on them, with a special provision in the Income Tax Act providing tax benefits on investments. Tax Saving Bonds come with a minimum lock-in period of 5 years, making them mid to long term investment tools.
While not as attractive as other investment options, tax savings bonds offer decent returns minus the risk which is generally associated with other instruments, making them ideal for members of the society who wish to save money without risking it. Individuals who are looking for long term returns rather than immediate ones can opt for tax saving bonds.
| Tax-free Bonds | Tax-saving Bonds |
| Interest (income) you earn is tax-exempt | Just the initial investment is tax-exempt |
| Section 10 of the Income Tax Act | Section 80CCF of the Income Tax Act |
| Offer higher interest rates than tax-saving bonds | Lesser interest rates compared to tax-free bonds |
| Can invest up to Rs.5 lakh | Tax-exemption is only up to Rs.20,000 investment |
| Higher lock-in period from 10 years | Has a buyback clause – you can withdraw investments after 5 or 7 years |
According to section 54EC, any person (individuals, HUFs, partnership firms, companies etc.) can avail exemption in respect of long-term capital gains (arising from the sale of long term capital asset other than equity shares and securities), if the capital gain is invested in Capital Gain bonds. The exemption will be the amount of capital gain or the amount of investment made, whichever is less. Interest rate offered on these bonds is 6% per annum. The exemption is subject to:
