Infra bond: a big investment bet

From a savings and investments perspective, the big news of the moment is not from the usual suspects like the stock markets and funds but tax-free bonds from the National Highway Authority of India. Dhirendra Kumar writes.

From a savings and investments perspective, the big news of the moment is not from the usual suspects like the stock markets and funds but tax-free bonds from the National Highway Authority of India. Since the income from these bonds is not taxable, on a tax-adjusted basis, the effective returns from these bonds can be as high as 12%.

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Moreover, the real value of the bonds comes from the fact that they have arrived at the peak of the interest rate cycle and are a great opportunity to lock in a high fixed return for an extended period of time. The effectively sovereign nature of these bonds also gives them a level of safety that infrastructure bonds do not have.

From a broader perspective too, the issuance of instruments like this should cheer up savers. What signifies is that all the straight-and-narrow that the new direct taxes regime had threatened will likely have a steady stream of exceptions like these bonds. After all, the idea behind the DTC was that the tax rates would be lenient but the list of the exemptions would be small (or non-existent). However, the reality is that the concept of using tax-breaks and exemptions to guide funds to specific uses is perhaps too deeply ingrained to throw out. Thus, investors can look forward to plenty of more opportunities like this one.