WHAT IS A TAX FREE BOND?

Tax-free bonds are debt instruments that pay fixed coupons, either semi-annually or annually, till maturity (at maturity investor gets Principal & last coupon). The amount invested in tax free bonds as well as the interest earned on the investment is exempt from income tax, under the Income Tax Act, 1961. However these bonds do not offer any additional taxation benefits under section 80CCF of Income Tax Act, 1961. These bonds are generally issued by government backed entities.

BENEFITS OF INVESTING IN TAX FREE BONDS : -

Tax free bonds have emerged as highly popular investment option among investors due to the taxation benefit that they offer.

• Tax-Free Income
• Low risk of default, since companies have a better credit rating
• Listing of bonds on various exchanges provides liquidity to your investments
• Option of holding bonds in "Demat Form makes" your investments easy to handle & monitor
• Ratings by agencies like CARE, FITCH, CRISIL, ICRA enables you to assess the quality of instruments