My primary goal is to secure long-term financial stability. I’m considering investing in government bonds, particularly those with tax-free interest. Could you provide information on the available plans for tax-free interest? I’m also interested in making monthly investments for 7 -10 years.
Reply by Sanjiv Bajaj, Jt. Chairman & MD, BajajCapital Ltd.
Tax-free bonds are a type of fixed-income instrument where the interest paid to the bondholders is exempt from income tax. These bonds are typically issued by government entities such as government companies, municipal corporations, and public sector undertakings. They generally have a maturity period ranging from 10 to 20 years and offer relatively low-interest rates. However, the tax-exempt nature of the interest makes them particularly attractive to investors in higher tax brackets, who may benefit significantly as the interest earned is not subject to income tax.
Currently, the yields on these tax-free bonds are in the range of 5% to 5.10%. When considering your desired monthly investment, it is crucial to understand the investor’s investment horizon, risk appetite, and financial goals. For those with a long-term investment horizon and an aggressive risk appetite, building an equity-oriented portfolio might be advisable. One effective strategy is to start investing in equity-oriented mutual fund schemes through Systematic Investment Plans (SIPs). This approach allows for the gradual accumulation of a substantial corpus over time, benefiting from the potential growth in equity markets.
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