What is a Unit Linked Insurance Plan, Types & Benefits

Posted by Rushabh H. Mehta | Published on 06 Mar 2020
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What is a Unit Linked Insurance Plan, Types & Benefits

What is ULIP?

Insurance plans are meant to provide financial security to you so that in case of premature demise, your family does not face any financial trouble. Though insurance plans provide unmatched financial security, many individuals also seek good investment returns on their premiums. Keeping this sentiment in mind, ULIPs were launched in the year 2000 when private life insurers were also allowed to operate in the insurance domain. Today, ULIPs have become quite popular, and insurance companies are offering different types of ULIPs to their customers. Let’s understand ULIP meaning in detail and its benefits –

What is a ULIP plan?

ULIP’s full form is Unit Linked Insurance Plan. A ULIP is an investment-oriented life insurance plan. The plan gives you the dual benefits of investment returns and insurance coverage. The premiums that you pay for the plan are invested in market-linked investment funds, which offer attractive growth. Returns under ULIPs are, therefore, not guaranteed but can be attractive if given time.

How do ULIPs work?

ULIPs are considered to be a transparent insurance plan as the premiums you pay, and the growth can be easily monitored. When you buy a ULIP, you can decide the amount of premium you wish to pay (provided it is at least the minimum required premium under the plan). The sum assured is then calculated based on the amount of premium paid.

ULIPs have different kinds of investment funds which include the following –

  • Equity fund wherein at least 65% of the portfolio is invested in equity-oriented securities
  • Debt fund wherein at least 65% of the portfolio is invested in debt-oriented securities
  • Balanced fund which combines both equity and debt investments for moderate risks and moderate returns

You can choose one or more of these investment funds as per your risk appetite. After that, relevant charges are deducted from the premium, and the premium is directed towards the selected fund. As the value of the underlying assets grows, the value of the fund grows. Your investment in the fund also grows, and you get market-linked returns. ULIPs also provide you with various flexible benefits which are as follows –

  • Switching – under switching, you can change the investment funds if your investment preference has changed
  • Partial withdrawal – you are allowed the flexibility of withdrawing from your fund value partially after the first five years of the policy have expired
  • Top-ups – additional investments can be done towards the plan through top-up premiums
  • Premium redirection – you can choose to redirect your subsequent premiums to another fund from the next policy year under this facility
  • Surrender of the plan – if the first five years of the policy have been completed, you can surrender your policy to terminate the coverage before the chosen term. When the policy is surrendered, the available fund value is paid as surrender value, and the plan is terminated.

Benefits payable under ULIPs

Under most unit-linked plans, you get either a death benefit or a maturity benefit. These benefits are as follows –

  • Death benefit – the death benefit is higher of the available fund value as on the date of death or the sum assured. If the fund value is higher than the sum assured, the fund value is paid otherwise, the sum assured is paid.
  • Maturity benefit – when the term of the plan comes to an end, the fund value is paid as maturity benefit. The maturity benefit can be taken in a lump sum, or you can also avail the benefit in instalments over the next five years through the settlement option feature, which is available under most unit-linked plans.

Types of ULIPs

Though ULIPs are aimed at creating wealth, there are different types of ULIPs based on the financial goal that they fulfil. These types include the following –

  • Investment ULIPs

Investment ULIPs are the most common unit-linked plans which aim to create wealth over the term of the policy.

  • Child ULIPs

Child ULIPs are especially designed unit-linked plans for the financial security of the child if the parent is not around. Under these plans, the parent is insured while the child is the beneficiary. These plans have an inbuilt premium waiver rider. If the parent dies during the policy tenure, the death benefit is paid. However, the plan does not terminate. The policy continues, and future premiums are paid by the company on behalf of the insured parent. On maturity of the policy, the fund value is again paid as the maturity benefit which provides the child with the financial corpus needed to pursue his/her dreams.

  • Pension ULIPs

These are other specific unit-linked plans which help in creating a retirement fund. Pension ULIPs are deferred annuity plans wherein you pay premiums during the policy tenure to build up a retirement corpus. In case of death, the death benefit is paid. However, if the policy matures, pension ULIPs allow you to receive annuity pay-outs from the corpus created or defer the vesting age from which you would receive an annuity, or withdraw 1/3rd of the corpus in cash and use the remaining fund value to receive annuity payments. Thus, pension ULIPs create a source of income after retirement and are suitable for individuals looking to fulfil their retirement planning needs.

Benefits of ULIP

A ULIP is popular because of the following benefits it provides –

  • It allows you to avail insurance coverage as well as investment returns in a single product
  • The premiums paid and the benefits received under ULIPs are completely tax-free in nature helping you save tax
  • The flexible benefits of ULIPs allow you to manage your investments as per your investment strategy
  • The different types of ULIPs help you fulfil the various financial goals that you might have
  • Switching and partial withdrawals do not attract any tax making ULIPs tax efficient
  • Since the returns are market-linked, you get inflation-adjusted returns from ULIP

ULIPs are attractive insurance policies that give you coverage as well as returns. Now that you understand ULIP meaning, its types and advantages, use our IndiaNivesh platform to invest in a plan as per your insurance and investment needs and enjoy all the benefits that the plan has to offer.

 

Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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What is Side Pocketing and How it affects Mutual Funds

Posted by Rushabh H. Mehta | Published on 06 Mar 2020

What is Side Pocketing, and How it affects Mutual Funds? The mutual fund industry in India is growing at an exponential pace, and as an industry, it is continuously widening its investor base and also increasing its geographical spread. The market regulator SEBI plays an important role in the regulation of the mutual fund industry, protecting the interest of investors at all times and taking adequate measures as and when needed to boost investor confidence in both equity and debt mutual fund schemes. Side pocketing in mutual funds is one such measure taken by SEBI to protect the interest of investors in debt mutual fund schemes in case of troublesome debt in the portfolio of the scheme. What is side pocketing in mutual funds? Side pocketing in mutual funds is the creation of a separate portfolio within the fund’s portfolio for assets that are illiquid, risky or distressed at the moment and have been downgraded by rating agencies below investment grade. Such assets are ring-fenced from the other high quality, liquid assets in the portfolio to protect and treated differently for investment and redemption to safeguard the interest of old as well as new investors in the scheme. Side pocketing was introduced by SEBI in December 2018 after the IL&FS fiasco, where it failed to meet its debt obligations and repay its lenders and creditors. This, in turn, put significant pressure on various mutual fund schemes that had IL&FS papers as a part of its holdings. The complete mayhem resulted in substantial volatility in the debt and money market instruments resulting in redemption pressure in mutual fund schemes. High-quality, liquid assets in the schemes were sold by the funds to meet redemption requests resulting in increasing the exposure of remaining investors in the illiquid assets.  Side pocketing mechanism is allowed only in debt mutual fund schemes. How does it side pocketing work? Whenever a debt instrument is downgraded by credit rating agency from an investment grade to a non- investment grade, the mutual funds have an option for creating a side pocket and segregating illiquid assets from the high-quality liquid assets. The existing investors are allotted units in the leading portfolio and segregated portfolio on a pro-rata basis. No redemption and subscription are allowed in the segregated portfolio. Moreover, SEBI makes it mandatory for the fund to list the segregated portfolio on the stock exchange within 10 days to provide an exit window to the existing unitholders. Depending upon their outlook, investors can either continue to hold their investment in the segregated portfolio or choose to exit at the prevailing rate. Any future recovery from the illiquid assets is credited in the side pocket portfolio and paid to the unit holder in proportion to his holdings. Side pocketing impact on mutual funds and AMCs Side pocketing aids mutual fund schemes from selling quality assets in its portfolio to meet sudden redemption pressure in a panic situation. Creation of side pockets help insulate the remaining portfolio from troublesome debt To ensure that mutual funds do not misuse side pocketing, SEBI also suggests a list of safeguards that AMCs may implement.   Benefits of side pocketing in mutual funds Over the last few months, many debt mutual fund schemes have side pocketing a portion of its portfolio if the ratings of the investment paper in its holdings have been downgraded by the credit rating agency. Side pocketing is important to protect the interest of retail investors in case of illiquid assets because credit defaults accompanied by information asymmetry, results in institutional investors taking advantage of the situation. The benefits of side pocketing in mutual funds include- It is an important mechanism to ensure stability and reduce volatility in the debt market by addressing the issue of redemption pressure in case of troubled assets It prevents distressed assets from hampering the returns generated by high quality, liquid assets At the time of selling the segregated assets, only those investors who have units in segregated assets on the record date are entitled to the proceeds, thus ensuring a fair treatment To avoid unfair advantage of lower valuation, fresh inflows are allowed only in the non-side pocketed portfolio As side-pocketing helps curb redemptions, it helps in stabilizing the net asset value (NAV) of the scheme In case of a situation arising due to sudden illiquidity, it provides cushioning to the portfolio. The most significant benefit of side pocketing is that all investors, retail or institutional are treated at par CONCLUSION Globally, side pocketing is one of the best mechanisms to protect the interest of investors, and SEBI as a regulator ensures that it takes timely measures and imposes adequate regulations for the AMCs to safeguard the interest of investors at large. If you have any specific query or doubt about side pocketing in mutual funds schemes, contact our experts at IndiaNivesh for guidance.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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ITR Filing - Penalty for Late Filing of Income Tax Return

Posted by Rushabh H. Mehta | Published on 09 Mar 2020

Introduction  Most taxpaying individuals seem to view filing income tax returns as burdensome and a hassle. However, filing income tax returns is no longer cumbersome like it used to be. With the advent of the online filing, also known as e-filing, the days of standing in long queues and the endless anxiety of meeting the tax filing deadlines are far behind. Today, you can conveniently file your returns from your home or workplace in a matter of minutes. But delaying or missing out on registering your ITR in time could incur substantial penalties.   Importance of filing on time Taxpayers typically receive notifications from the Income Tax Department regarding necessary income tax-related days in advance. In order to avoid paying the income tax penalty for late filing of your income tax returns, it can help to create an alert for such dates or mark them on your calendar. Filing your income tax returns comes with specific advantages such as carrying forward of losses, claiming an income tax refund, reporting one's revenue or income for the financial year and avoiding paying penalties. Any returns filed after the deadline usually calls for late payment fees of up to ₹10,000.   The need to file Income Tax Returns As a taxpayer, you are called to declare your revenue, tax deductions, investments, expenses and taxes through a form to submit to the Income Tax Department. Under the Income Tax Act, 1961, it is mandatory for every taxpayer to file income tax returns. The facility of filing taxes can now be done online, and hence it is crucial to have necessary documents at the time of filing returns.   Understanding penalties As a taxpayer, the penalty for late filing of income tax return could be: ₹5000 if income tax returns are filed after the deadline of the relevant Assessment Year. In this case, on or before December 31 of the relevant Assessment Year. ₹10,000 if income tax returns are filed after the deadline but before the end of the relevant Assessment Year. In this case, after December 31, 2019, but before March 31, 2020. If your cumulative income does not exceed ₹5 lakhs, you could be liable to pay ₹1000.  The law of placing penalties for late filing of income tax returns was introduced in the Budget 2017, under Section 234F. It subsequently became valid for the Financial Year of 2017-18 or the Assessment Year 2018-19 and forward. The year that directly follows the Financial Year for which the ITR has to be filed is regarded as the Assessment Year. Hence, the Assessment Year for Financial Year 2018-19 is 2019-2020.   Simplifying the Section 234f penalty through examples To understand how penalties can affect taxpayers, let's look at them through instances. Example 1: Say, Mr X earns a yearly income of ₹6 lakhs. If he files his income tax return for Assessment Year 2019-2020 on August 25, 2019, he will not be required to pay the penalty under Section 234F. This is because, since Mr X filed his income tax returns within the due date, he was saved from paying a late fee. Example 2: Mr A earning a yearly income of ₹7 lakhs filed his income tax return for Assessment Year 2019-2020 on November 10, 2019, would have to pay ₹5000 as penalty fee. This is because Mr A filed his income tax return after the due date, but before December 31, 2019. Example 3: Mr D earning an annual income of ₹5.5 lakhs filed his income tax return for Assessment Year 2019-2020 on February 2, 2020, he would have to pay a late penalty fee of ₹10,000. This is because, Mr D filed his income tax return after the due date and after December 31, 2019.   Importance of filing taxes While paying taxes is essential, filing your tax return holds even greater importance. While there are numerous advantages of filing your returns within the permissible timeframe, the consequences of delaying them can prove to be expensive such as paying the penalties under Section 234f income tax. Hence, as a salaried individual, it is crucial to complete your tax return filing when you receive Form 16. By adhering to deadlines, there is no need to worry about late payment fees.   Repercussions of delayed ITR returns If you delay filing your income tax returns, you may not be able to carry forward your losses from capital gains, except for losses from house properties. Besides, being late in filing your taxes could also incur interest on unpaid tax. In addition, not filing your tax returns on time could cause you to lose the interest on any refundable amount if you are eligible for refund and interest on that refund.  Besides, if you fail to file your returns on or before the deadline, it could invite an additional interest of 1% per month or until the time you clear the amount on the unpaid taxes. The interest is applicable under section 234A of the Income Tax Act. For instance, the due date to file your income tax returns in a particular Financial Year is August 31, but you file your taxes on December 30. In this case, if your total outstanding is ₹1 lakh, having taken into account advance taxes and TDS, the total interest payable would be ₹4000, with interest charged at 1% for four months. However, in the event that you have to pay the fee under Section 234F, you need to apply Challan Code ITNS 280. To pay the penalty, the taxpayer must visit the NSDL website and select Challan ITNS 280. There are two ways to make late payment fees. It can be included as the total income tax due The amount can be mentioned under 'Other' head.   Conclusion Ensure that you file your income tax returns by the due date if your revenue surpasses the exemption limit. It is crucial to file your income tax returns on time if you have to deposit balance tax, expect a significant refund amount or have to carry forward your losses.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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  • What is CAGR & How to Calculate it?
    Posted by Rushabh H. Mehta | Published on 06 Mar 2020

    There are different types of investment avenues in the market and each of these avenues promises you a compounded rate of growth if you remain invested. Compounding of return means earning a return on the return earlier generated. So, if you invest INR 100 and earn a return of 10% in the first year, the amount would become INR 110. Thereafter, in the second year, you would earn 10% on INR 110 giving you a return of INR 11. This compounding helps grow and multiply your wealth considerably over a period of time. In the case of market-linked investments, the rate of return is not guaranteed. It varies over the investment period. To know the average rate of return on your investments, the concept of CAGR is used. Let’s understand what CAGR is and how it helps you find the growth of your market-linked investments. What is CAGR? CAGR’s full-form is Compound Annual Growth Rate. The Compound Annual Growth Rate, in simple terms, is the average rate of return of an investment over a one year period. CAGR takes into account two important factors - the time period of the investment and the fluctuations in the return. Since the returns vary depending on the market fluctuation, finding the return over a specific time period becomes difficult. CAGR gives you the average growth rate offered by the investment over the said time period. CAGR shows the approximate growth rate considering that there is no market fluctuation and that the returns earned are reinvested into the investment. How to calculate CAGR? It is very easy to calculate CAGR. There is a CAGR formula which you can use to find the Compound Annual Growth Rate of your investment. The CAGR formula needs three important details which are as follows – Value of the investment made initially (VI) Term of investment (T) Value of the investment at the end of the term (VE) Using these three inputs, the CAGR formula becomes – CAGR = (VE / VI) ^ (1/T) – 1 Let’s understand with an example – Mr. A invested INR 10,000 in a market-linked investment avenue. After 3 years, the value of his investments stands at INR 13,500. The CAGR for Mr.A’s investment could be calculated as below – VI – INR 10,000 T = 3 years VE = INR 13,500 CAGR = (13500/10000) ^ (1/3) – 1 = 10.52% How CAGR helps understand the mutual fund growth rate? Mutual funds are market-linked investment avenues which do not offer a guaranteed rate of return. Since the returns are subject to market fluctuations, CAGR becomes an accurate tool to measure the performance of the fund over a specified period. Investors can check the annual CAGR of mutual fund schemes and use the rate to find out which scheme offers better returns than others. The fact sheet offered by the mutual fund house contains returns generated by the fund over different time frames. These returns can prove to be confusing and so CAGR is an easier alternative to understand the performance of the fund. CAGR acts as a ready reckoner for investors to assess returns from a mutual fund scheme and also highlights the compounding of returns on mutual fund investments. Important points to know about CAGR The investment risk inherent in the scheme is not highlighted by CAGR. CAGR is merely a yardstick to measure the growth rate CAGR proves to be a good measure of growth for a short-term period, i.e. up to 6 or 7 years. If you are considering long-term investments, the growth trends over a short-term period would be averaged out. In such cases, CAGR would give an average rate even if the fund performed excessively well in a two or three year period and then the returns fell in later years. CAGR changes every year since the investment period changes CAGR for two investment funds can match one another even if the funds are different. This might happen if one fund performed well initially and the other one performed well in the last few years. As a result, the performance is averaged out and the CAGR Other modes of calculating returns from investments Besides CAGR, there are other ways to calculate the returns generated by market-linked investments. These ways are as follows – Returns since launch Under this model, the return earned by the fund ever since it was launched and till the present date is calculated. Trailing returns Under the trailing returns approach, you measure the performance of your fund daily, weekly, bi-weekly, monthly or annually. Annualised returns Annualised returns are calculated as the geometric average of the return yielded by the fund over a given period of time. CAGR v/s Absolute returns Absolute returns measure the total return yielded by an investment. The time period is not considered. CAGR, on the other hand, measures the return over a specific time period. For instance, in the previous example, INR 10,000 grew to INR 13,500 over a 3-year period. The absolute return would be 35% since it measures the total return earned on the investment. However, when CAGR is considered, the time period of investments is also taken into consideration thereby considering the time value of money. As such, CAGR comes to 10.52% which is a more realistic figure. While absolute returns show the returns generated, the time period is missing. You cannot figure out how many years it took the investment to generate this return. But CAGR shows you the annual return making it easier to make a judgement on the performance of the fund. The next time you invest in mutual funds, stocks or other market-linked investment avenues, consider their CAGR to choose the fund or investment which has better returns over its peers. So, visit IndiaNivesh and find out a mutual fund scheme of your choice and then compare the scheme’s CAGR with its peers to choose the best performing fund.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

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  • Capital Market – Meaning, Types & Functions of Capital Market
    Posted by Mehul Kothari | Published on 20 Nov 2019

    We all know how various companies and industries raise funds for their short term requirement through the money market. However, when they need funds for long term, capital market is their source. The capital market is just like the money market but with a difference that funds raised in the capital market can be used only for long term. In this article, you will learn about the concept of capital market in detail. Let us first understand what is the capital market? Understanding Capital Market Capital market in simple words means the market for long term investments. These investments have a lock-in period of more than one year. Here, the buyers and sellers transact in capital market instruments like bonds, debt instruments, debentures, shares, derivative market instruments like swaps, ETFs, futures, options, etc. Let us now understand the types of capital market. Types of Capital Market The capital market is of two types i.e. Primary Market and Secondary Market. Primary Market The primary market is also called “New Issue Market” where a company brings Initial Public Offer (IPO) to get itself listed on the stock exchange for the first time. In the primary market, the mobilisation of funds is done through right issue, private placement and prospectus. The funds collected by the company in the IPO is used for its future expansion and growth. Primary markets help the investors to put their savings into companies that are looking to expand their enterprises.  Secondary Market The secondary market is a type of capital market where the securities that are already listed on the exchange are traded. The trading done on the stock exchange and over the counter falls under the secondary market. Examples of secondary markets in India are National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). After learning about the types of capital market, let us now learn about the capital market instruments through which money is raised. Ways of Raising Funds Offer through Prospectus In the primary market, the prospectus is used to raise funds. The company invites the investors and the general public through an advertisement known as the prospectus to subscribe to the shares of the company. The shares or debentures are allotted to the public on the basis of subscription. If the company receives a high subscription then allotment is done to them on pro-rata basis. The company hires merchant bankers, brokers or underwriters to sell the shares to the public.  Private Placement Some companies try to avoid the IPO route to raise funds as it is very costly. Instead, they give investment opportunity to few individuals via private placement. Here the companies can offer their shares for sale to select individuals, financial institutions, insurance companies and banks. This way they can raise funds quickly and economically. Rights Issue The structure of capital market allows the companies in need of additional funds to first approach their current investors before looking at the other sources for finance. The right issue gives the current investors the first opportunity to make additional investments in the company. The allotment of right shares is done on pro-rata basis. However, if the current shareholders of the company do not want to exercise their rights, the shares can be offered to the public. e-IPO e-IPO means Electronic Initial Public Offer. e-IPO is an agreement between the stock exchange and the company to offer its shares to the public through online mode. It is a fast and speedy process. The company here needs to appoint registrar to the issue and brokers to accept the application received from the public. The above mentioned are the ways of raising funds through the capital market. Let us now learn about the various functions of the capital market. Functions of the Capital Market Helps in the movement of capital from the people who save money to the people who are in need of it. Assists in the financing of long term projects of the companies. Encourages investors to own the range of productive assets. Minimises the transaction cost. Helps in the faster valuation of financial securities like debentures and shares. Creates liquidity in the market by facilitating the trading of securities in the secondary market. Offers cover against price or market risks through the trading of derivative instruments. Helps in efficient capital allocation by way of competitive price mechanism. Helps in liquidity creation and regulation of funds. The above mentioned are the functions of the capital market. The capital market performs its functions with the help of buyers and sellers who interact and transact. The structure of the Indian capital market is well regulated and highly organised. The capital markets may be sometimes termed risky because they do not give fixed returns annually. But when looked from a long term perspective, their performance has always been good and rewarding for the investors. If you want to learn more about the capital market or put your savings in the capital market, you can contact IndiaNivesh Ltd.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

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  • Tax Free Bonds – Meaning, Features & Best Tax Saving Bonds for Investment
    Posted by Mehul Kothari | Published on 18 Oct 2019

    Investors always look for opportunities to invest in avenues that can give them good returns in the long run. Along with high returns on investments, they also look for tax saving options. The tax saving investment options that are popular in terms of high return and zero taxation are tax free bonds and tax saving bonds. If you are looking to make tax saving investments, this article will help you in learning about tax free bonds in India and its related information in detail. Let us first understand what tax free bonds in India are. What are Tax Free Bonds? Tax free bonds are issued by the government enterprise. They are like financial products and includes municipal bonds. They are a low-risk investment option and offer a fixed rate of interest. What makes tax free bonds even more attractive is the fact that it makes you eligible to claim tax exemption under section 10 of the Income Tax Act of India, 1961. The money collected by the government from these bonds is invested in housing and infrastructure projects. The maturity period of these bonds is 10 years or more. The next important question that must be arising in your mind is who should be investing in tax free bonds in India. So let us learn about the investors who can invest in tax free bonds. Who Can Invest in Tax Free Bonds? Investors who are looking for a fixed annual income and interest proceeds can invest in the tax free bonds. It is also a good investment avenue for investors who have a lower risk appetite and are looking to invest for long term duration. Individual investors like Hindu Undivided Family (HUF) members and Non-resident Indians (NRIs), who want to diversify their portfolio can also invest in these bonds. Furthermore, SEBI has allowed qualified institutional investors to invest in these bonds. Partnership companies and limited liability groups are also allowed to invest. In the last few years, the regular investors in tax free bonds include regional banks, cooperative banks, trusts and corporate companies. Let us now learn about the features of tax free bonds. Features of Tax Free Bonds Exempt From Tax The main feature of tax free bonds is that they are exempt from tax. The interest earned on these bonds is free from income tax. However, it is advisable that you must declare your interest as income from tax free bonds and not to claim the tax deduction on the investment amount. Moreover, no tax deducted at source (TDS) is applicable on tax free bonds. These bonds are beneficial for individuals who earn higher income and fall under higher tax bracket.  Low Risk Since tax free bond schemes are run by the government, the chances of default on interest payment is almost nil. This safeguards your capital and also provides you fixed annual income in the form of interest. Liquidity Tax free bonds are long term tax saving investment option and they have extended lock-in period. This suggests that you cannot liquidate tax free bonds quickly. Therefore, you must be aware of the fact that these tax free bonds cannot act as your emergency fund. Lock-In Period While investing in tax free bonds you must ensure that you will not be needing the money in the short term. This is because tax free bonds have lock-in period of 10 to 20 years. This means, you cannot withdraw your investment before the maturity period. Issuance And Transaction The tax free bonds can be purchased through a demat account or in physical form. They are traded on the stock exchange. Here you must remember that only the interest earned on these bonds is tax free and capital gains made by selling the bonds in the stock market is taxable in nature. Returns The returns on tax free bonds are dependent on your purchase price because these bonds are traded in lower volumes and have limited buyers or sellers. Interest Income The investors in the tax free bonds receive the interest on an annual basis. The rate of interest on these bonds ranges from 5.50% to 6.50%. The rate of interest can fluctuate because they are related to the current rate of government securities. The rate of interest on these bonds is very attractive considering the fact that they are exempt from tax. Let us now have a look at few of the popular and upcoming tax free bonds of 2019. Popular and Upcoming Tax Free Bonds of 2019 Some of the popular and upcoming tax free bonds of 2019 are HUDCO N2 Bonds, REC N7 series, HUDCO N3 Bonds, National Highways Authority Of India, REC N6 Bonds, Indian Railways N7 Series, Indian Renewable Energy Development Agency, Power Finance Corporation, etc. Often people use the term tax free bonds for tax saving bonds and vice versa. But in reality, they both are different from each other. In this section of the article you will learn about how tax free bonds are different from tax saving bonds. Difference Between Tax Free Bonds and Tax Saving Bonds Under tax free bonds, the interest earned is exempt from tax under section 10 of the Income-tax Act. The lock-in period is from 10 to 20 years and you can invest up to Rs. 5 lakhs. On the other hand, under tax saving bonds the initial investment made is exempt from tax under section 80CCF of the Income Tax Act. The tax saving bonds have a buy-back clause and you can withdraw your investments after 5 or 7 years. The tax exemption for tax saving bonds is up to an investment of Rs. 20,000. Let us now learn about investment and redemption of tax free bonds. Investment and Redemption of Tax Free Bonds You can make an investment in the tax free bonds through the demat account or in physical form. It is simple and hassle-free to make an investments in these highly rewarding bonds. However, you can make investment only when the period of subscription is open. Just like investing, redeeming tax free bonds is also a very simple task. You can redeem the bonds after the completion of the tenure. Investing in the tax free bonds and tax saving bonds are highly rewarding as they involve almost no risk. If you are new to the financial market or you are looking to invest in tax free bonds or tax saving bonds, you can take the assistance from IndiaNivesh Ltd. We are the leading broking firm and financial advisors in the market. With our assistance, you can achieve your financial goals and objectives in a desired manner.  Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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