HOW WOULD INVESTING IN CAPITAL BONDS HELP YOU SECURE YOUR FUTURE?


Investing in capital bonds and government bonds is considered highly safe and secure, especially for those investors with a moderate or conservative risk profile. In case you are trying to save on capital gains tax then capital bonds investment is a good option for you to pursue, which is also picking up good momentum in India. It is a good way for Indian investors to save on their long-term capital gain taxes on the sale of any of their assets. All they need to do is to invest the money in 54EC government bonds, which are also called capital bonds. Investment in government bonds or capital bonds such as 54EC can be made in short-term and long-term bonds. There are two types of long-term capital bonds, one is issued by Rural Electrification Corporation Limited (REC) and the other by the National Highways Authority of India (NHAI) under Section 54EC.

You are subject to long-term capital gain when you sell an asset at a profit after you held it for more than a year. Thus, you can use 54EC bonds as a tool to save taxes on long-term capital gains.

Benefits of capital gains bonds:
  • It is a safe and secure asset class to invest
  • AAA-rated bonds provide you with higher interest rates.
  • TDS will not be deducted on interest earned despite interest being taxable.
  • These bonds have a lock-in period of 3 years. Thus, redemption is not possible before the completion of 3 years.
  • Capital bonds are non-transferable. Thus, they become a good and effective investment option.

 Key facts about capital bonds investment that can help:
  • Minimum investment: 1 capital bond worth Rs.10000
  • Maximum investment limit: Capped at 500 bonds atRs.50 lakhs in a financial year. 
  • Annual returns:~5.25% p.a.
  • Holding Format: Demat or physical form.
Capital bonds can be redeemed along with total interest accrued through the NECS route. One of the biggest advantages of investing in capital bonds are that they are automatically redeemed once the lock-in period of 3 years is complete.

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