There was a huge cry from retail investors as well as from advisers to invest in tax free bonds. But only few have an idea that one can sell them in secondary market before maturity. How much you get depends on interest rate risk. So let me sum up the recently concluded FY 2013-14 tax free bonds current price in secondary market.
Usually return on your bond will be constant as you receive interest (coupon) on it at the specified interval. But if you have any problem or if the price of your bond is quoting at higher price than the face value then you can liquidate it in secondary market. Even though liquidity is bit hard, but still they traded and you get an opportunity to redeem them.
Below is the list of Tax Free Bonds issued in the year 2013-14 and current price at secondary market.
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List is exhaustive also you may see some difficult in identifying the ISIN code. All prices are as of 17th June 2014.
You notice that currently all these tax free bonds are trading at premium (more than their face value of Rs.1,000). Reason for such high trade is because of current interest rate cycle in market. Bond prices will increase when you see fall of interest rate imminent from central banks. So currently inflation is easing a bit and everyone expecting that RBI in future either will maintain same interest rate or reduce. There are always few risks with bonds also which one need to understand.
Taxation of Tax Free Bonds if you sell in secondary market–
If you sell these bonds in secondary market like NSE or BSE, any short term gain (less than a year) will be taxed according to your tax slab. Also any long term gain (more than a year holding) will be taxed at 10%. (Note-According to Sec 48 of Income tax Act, 1961 benefit of indexation is not available in case of bonds and debenture, except capital indexed bonds. So long term capital gain tax can be considered at a rate of 10% on listed bonds without indexation. )
Liquidity-
These bonds are meant for long term investment. So it is hard to find a good buy easily as they hardly trade in the market.
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Namit Dua
Does the person buying the bond in secondary market get the tax free returns. Does the coupon remain same or gets reduced. From what I recollect the coupon reduces on secondary purchase. Also how does one sell these bonds in secondary market? Do I need a broker to facilitate the same.
Basavaraj Tonagatti
Namit-The coupon is as usual tax-free and it is fixed.
Mahesh sharma
Read your article on tax free bonds.I have just retired.I need your considered opinion, whether to buy tax free bonds in market or buy 8 percent GOI savings bond.
Basavaraj Tonagatti
Mahesh-You can buy them from the secondary market.
SWADESH
KINDLY LET ME KNOW HOW TO FIND HE LATEST MARKET PRICES OF THE TAX FREE BONDS I AM INTERESTED IN BUYING FROM THE SECONDARY MARKET. THE PRICES NOW QUOTED SEEM TO BE OLD
THANKS FOR GUIDANCE
SWADESH SACHDEV
Basavaraj Tonagatti
Swadesh-By finding the ISIN number of your bond you can check the rate either on NSE or BSE portals.
Seshadri
Can you pl advise me as to whether it is better to purchase a new bond offer of NTPC or select any bond from the secondary market which may have a better interest rate?
Basavaraj Tonagatti
Seshadri-It depends on at what rate they are trading and the total yield on such bonds. Usually when the interest rate is falling then high coupon payment bonds will trade at premium to their face value.
DIPANSHU
hi
from where i can buy the tax free bonds and is there any new tax free bonds available.
Basavaraj Tonagatti
Dipanshu-Currently now such bonds in offer. If you want to buy earlier bonds then in secondary market like how you buy stocks of company.
M VARSHNEY
Thanks for valuable information in your article. I am a holder of a few tax-free bonds.Can you update the market prices of Tax-free bonds as on March 2015 and e-mail them to me please.
Basavaraj Tonagatti
Varshney-You can search the code from above list. Search it in NSE or BSE sites to find the latest price.
C B kharpate
You have very nicely described Tax free bonds . However in your article lastly you said that these are not liquid .
In that case could you please tell how to purchase them in secondary market thru online mode ?
( I do investment and also trading thru Sharekhan online portal but could not find there trading mode in Bonds from secondary market , like MF and equity)
Basavaraj Tonagatti
Kharpate-I said not liquid because, for every buy there must be some seller. Yes you can buy it through your demat account. Please contact Sharekhan, they help you in buying these bonds.
Kumar
Which is the best online term plan for a person aged 36 yrs whose earning is Rs.7,00,000/- ( Annual ) with 3 dependents
Basavaraj Tonagatti
Kumar-Please visit my earlier post “Best Term Insurance plans in India (After 1st Jan 2014)“
Kumar
is savings in NPS beneficial in the longer run considering my age or Equity
Basavaraj Tonagatti
Kumar-NPS have lot of drawbacks too. But I can’t guide you whether this is suitable or not without knowing your age or any financial details.
Hemant
Under bonds/debenture sell, indexation is not allowed.
Basavaraj Tonagatti
Hemant-Thanks for pointing. I did changes accordingly.