If some creditable institution gives me a guarantee for returns--which even if matches with the inflation rate--on my investment, I simply adore it. The simple reason for my rejoice is guarantee! For there is no guarantee on equity market. A simple spur of bad events may take me back to 80% loss portfolio and I may have to wait till eternity to recover my loss.
Currently I am looking forward to invest a good chunk of my cash fund into bond market. I am considering NSCs, FD & Infrastructure bonds as my options.
In the revised DTC, infrastructure bonds have been added as a new tax saving instrument. These bonds can be issued by LIC, IFCI, IDFC and any other non banking infrastructure financial institution. Rate of return offered is not yet known.
Let's objectively analyze these bonds and their effective yield assuming that they will offer not more than 8%.
Suppose I have invest 10,000 for 5 years (lock-in period) on March 31st (for simplicity). With the revised tax slabs, I shall be saving 1000 in the first year itself. So my effective lock in money will be 9000. After 5 years with the compound interest, 9000 will be 10000*(1.08)^5 ~ 15000. If we take 9000 into account the actual interest benefit we get will be {(15000/9000)^1/5 } - 1 } *100 ~ 10.3 %.
Lets see what would be the interest for NSCs. 10,000 invested for 6 years. After 6 years it will mature to 16010 (8% annual but compounded half yearly). Effective rate of interest would be 10.08%. With NSC we will not get 'additional tax saving benefit'
In the same line tax saver FD with and interest rate of 8 % will effectively fetch 10.3%.
Clearly infrastructure bonds have additional benefit. So what are you going to do?
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