Wealth Works: To Tax Free Bond or Not!

Tax Free bonds are not products for everyone. Here are some questions you could ask yourself before investing in them.

Do I need long term debt in my portfolio
Do I believe interest rates are likely to fall over a 10-15 year time frame.
Am I likely to be be around for the next 10-15 years?
Am I likely to be in the highest tax bracket over the next few years. Also would tax rates go up in the future?
Am I comfortable investing in Indian Government companies for such long periods of time?
Would indexation be useful to me?

If you have a positive response to these questions, then it maybe a good idea to consider investing in tax free's. Some additional thoughts...

Use the demat option if you buy them. In the physical form, if you lose the certificates, would be a nightmare to get duplicates.
These bonds will get listed on the exchanges. And therefore, you may choose NOT to hold on to them for the full term. If interest rates do go down, you may get a chance to sell at a good profit. You do have to hold on for a full year to avoid paying short term capital gains tax.
Try and go for the AAA rated funds. You will be holding these possibly for a while.
Keep an eye on interest rates and if they do fall, maybe you could take advantage. Don't get emotionally attached.

If you've got this far, then you would want to know if any tax free bonds are up on offer... This is a heads up on the tentative schedule

Wealth Works