Infrastructure Bonds Investment Guide

Should you invest in these bonds?

Before investing in these bonds, you should remember the following positives & negatives:

+ve

•  Addition tax benefit up to 20,000/- over & above 1 Lac limit of section 80C
• Good returns as compared to other market investments.
• Secure investments.

-ves

• 5 years lock-in period.
• Interest earned on bonds is taxable.
• Some bond issuers require DMAT A/C

Before investing, you should consider that do you really require this investment. For different tax slabs, the effective return varies. Approximate calculation is following:

Tax Slab	Absolute Return	Effective Return
10%	9%	11.13%
20%	9%	11.39%
30%	9%	11.70%

*Above returns are calculated without considering the tax on returns on this investment.

Additionally, one should keep the following points in mind while investing in infrastructure bonds:

• Reducing tax liability means invested amount will be deducted from the total taxable income.
• Different bond issuers have different terms. Some require Demat account while some also allow subscription in physical form.
• Lock-in period is the period till you can not sell you bond like any other tax saving instrument. It is 5 years for these bonds.
• Maturity date is the date after that the bond must be redeemed. It is 10 to 15 years depending on the bond issuer.
• Almost every bond issuer company provides two options for interest payment. One is annually and other is cumulative on redemption. To decide, which one to choose, keep following points in mind:
• 1.       Since interest is taxable, it will add to your taxable income. If getting interest annually reduces your tax liability, go for annual option.
• 2.       If you have better options to invest you money or you need your money soon, go for annual option.
• 3.       If your nature is to spend money if it is in your hand then better to go for cumulative option.
• Buyback option is to be decided while buying the bonds. If you choose this option, you will be able to sell the bonds to the issuing company after expiry of lock-in period. If you do not choose this option, either you should sell them on stock exchange or wait till maturity of the bonds.

• After lock-in period, there are two options with investors to get their money back:

1. If you have opted buy back option, you may write the bond issuers company to exercise this option and you will get your money + returns credited to your bank A/C
2.  These bonds will be listed in stock exchange. You can sell them like any other stock and get your money back. Remember, capital gain tax will come into picture in this case.