Are you looking for whether tax free bonds better than bank FDs? Or Should you invest in tax free bonds, as recently couple of such tax free bonds like NTPC tax free bond, PFC Tax free bond launched with very attractive return promise? The answer is quite simple I believe. You have to analyse and know the differences between Tax Free bond and bank fixed deposit schemes.
In this article I will try to share a comparison between tax free bonds vs fixed deposits. If you find more information you can share the same or correct the current information as well.
Tax Free Bonds vs Bank Fixed Deposits Comparison
When you are ready to invest your money, then the next step should be spend enough time to analyse the investment product. Many people trust their friends and try to follow their investment habit, but end up with loss at the end. Your financial goal is different and accordingly you should plan your investment.
If you have the band-width to take some risk on investment, then you have many options like stock market. But if you need moderate and guaranteed return then small deposit schemes are best. In that context, you should consider both tax free bonds and fixed deposit schemes and then decide why you should invest.
Here is a comparative chart between tax free bonds vs fixed deposits
|Tax Free Bonds||Fixed Deposit Schemes|
|Tax Free bonds offer higher compared to FDs||Fixed deposits has moderate return and less compared to tax free bonds|
|Investment in such bonds are tax free||Fixed deposit schemes are liable to attract income tax, except 5 year tax savings FDs|
|Tax Free bonds are not available anytime, in a year for a particular period companies open the window to invest in them||You can buy FDs anytime in a year|
|Interest paid on yearly basis||You will get the return after maturity only|
|Capital gain tax is applicable||No capital gain tax|
|These bonds are tax free under Section 10(15)(iv)(h) of the Income Tax Act, 1961.||5 year FDs are tax free under Section 80C of the Income Tax Act, 1961.|
|In case of premature withdrawal, you may or may not get the 100% principle amount back. It depends up on the bond value and terms of the company||In case of FDs, you will get your 100% principle back and then less interest amount as withdrawal before maturity.|
|Tax free bonds are best investment option for people with 20% – 30% income tax slab for a long term.||Anyone can invest in FDs to save income tax. Not only that FDs are best instrument to save money for emergency fund creation or achieving a short term goal|
|A tax free bond is like a loan you are giving to that company, for which company is paying you interest rate.||Fixed deposits are regular investment product where you income is guaranteed.|
If you are choosing a tax free bond to create a long term wealth, then carefully read about the terms and the history of the company you are investing. And also you should have some back up to support your emergency expenses.