Infrastructure Bonds and their Benefits

Before understanding infrastructure bond, let us understand what is a bond.

A bond is an instrument used by the institutions to borrow money. Government executes various infrastructure projects and it need money to run and complete these infrastructure projects. Government issues infrastructure bonds to arrange funds from public or institutions for the infrastructure projects. These bonds are issued by government, government authorized companies or non- banking financial companies.

How Infrastructure Bonds Work?

If you are looking for a fixed income, then infrastructure bonds are suitable for you. Infrastructure bonds have a fixed interest rates and they provide tax benefits also. The maturity of these bonds vary from 10 to 15 years with a minimum lock in period of 5 years. During the lock in period, you cannot sell these instruments.

Features of Infrastructure Bonds

(a) Eligibility

You should be Indian resident to be eligible for investment in infrastructure bonds

(b) Entry Age

No age limit is specified

(c) Investment limits (Rs.)

Minimum investment is Rs. 5000/- and maximum investment is Rs. 2,00,000/-

(d) Interest

7.25% to 8% per annum depending on the type of bond

(e) Face Value

Rs. 1000/- to 5000/- based on the type of bond

(f) Tenure

Minimum 10 years with lock- in period of 5 years

(g) Account Holding

Individual, joint or HUF

(h) Nomination

Nomination facility is available

Some Infrastructure Bonds

There are many infrastructure bonds in India, some of which are stated below.

Tax Benefits

The purpose of infrastructure bonds is to provide exemption in income tax. You can claim income tax deduction for investment of up to Rs. 20,000/- in long term infrastructure bonds under section 80 CCF of the Income tax act. This is apart from the Rs. 1 lakh income tax limit, as stipulated in section 80C of Income tax act. So a taxpayer may save up to Rs. 6,180/- at the highest tax bracket.

This provision was announced in Budget 2010 and the aim of this provision is to arrange funding for infrastructure projects through domestic savings. As per this regulation, leading institutions like ICICI, IDFC, Life Insurance Corporation of India (LIC) and non- banking finance companies, financing infrastructure projects, are allowed to raise money through these bonds.

Are these Investment Instruments Really worth Investing?

These bonds give you an opportunity for additional tax savings, therefore you may consider investing in them only and only if you have exhausted the Rs. 1 lakh limit under section 80C. The reason of this is that many tax saving instruments such as ELSS, ULIPS and NPS, offer better return than these bonds.

How to Buy the Infrastructure Bonds?

You can invest in infrastructure bonds, if you have a demat account. You have to fill an online application to buy the infrastructure bond. You will require a demat account and a PAN card. There bonds can be traded on exchanges like stocks, after the expiry of the lock in period. The interest earned on the infrastructure bonds is taxable. You can buy the infrastructure bonds in physical form also. The requirement for purchasing the bonds in physical form is a PAN card, identity proof and address for KYC procedure.

Some Other Advantages of Investing in Infrastructure Bonds

1. You can get a decent return and these bonds invest in infrastructure sector which is growing rapidly in our country.
2. The government is funding in the development of 100 smart cities. So there is a lot of growth in infrastructure sector due to this.
3. The government has launched many schemes which are for the benefit of the society such as, housing for all, rural electrification, etc. Infrastructure bonds help in these social causes.
4. You get free insurance when you purchase infrastructure bonds. This is an additional benefit you get by investing in infrastructure bonds.

Conclusion

Infrastructure bonds are investment instruments for additional tax savings. Government issues infrastructure bonds to arrange funds from public or institutions for the infrastructure projects. These bonds are issued by government, government authorized companies or non- banking financial companies. Infrastructure bonds have a fixed interest rates and they provide tax benefits also. You can claim income tax deduction for investment of up to Rs. 20,000/- in long term infrastructure bonds under section 80 CCF of the Income tax act. This is apart from the Rs. 1 lakh income tax limit, as stipulated in section 80C of Income tax act. You may consider investing in these bonds if and only if the purpose is additional tax saving because many other instruments like ELSS, ULIPS and NPS, offer better return than these bonds.

Also read: Corporate Bond Funds, their Features and Benefits