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Infrastructure Bonds

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What is an infrastructure bond?

Infrastructure bonds are usually issued by the Government and infrastructure financing Companies, to raise funds for infrastructure projects. Whenever the Government is short of funds, it issues infrastructure bonds to finance these projects.

How to apply

  • You can apply online to invest in an infrastructure bond, if you have a demat account. You have to fill up the online application form.

  • You require a demat account and a PAN to trade in infrastructure bonds.

  • You can apply for these bonds in the physical form. You require a self attested PAN card. You need to have identity and address proof as part of the KYC (Know Your Customer), procedure.

  • These bonds have a maturity period of 10 years and a lock in period of 5 years.

  • These bonds can be traded on stock exchanges just like stocks, after the expiry of the lock in period.

  • The interest earned on an infrastructure bond is taxable.

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Why invest in Infrastructure Bonds

Decent Returns

You get a decent rate of interest. This is because infra bonds invest in infrastructure, which is a rapidly growing sector in our country.

Growth of Smart Cities

The Government is funding the growth of 100 smart cities in the country. Infrastructure bonds have an exposure to smart cities.

Helps Government Projects

The Government has launched ambitious projects, such as affordable housing for all by 2020. Infra bonds help this cause.

Free Insurance

If you purchase infra bonds from certain firms, you get free insurance. This is an added benefit along with the interest you get.

Eligibility for Infrastructure Bonds

If you are an Indian resident or a HUF, you can invest in the infrastructure bond. NRI's cannot invest in infrastructure bonds. These bonds have a minimum investment amount of INR 5000 and thereafter in multiples of INR 5000.

 
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Concepts & FAQ's Infrastructure Bonds

What are Infrastructure Bonds?

An Infrastructure bond is usually floated by governments, infrastructure financing companies etc to raise funds which will be used in the development of infrastructure of a country. Majority of the infrastructure development projects are carried out under the aegis of the government. However, there have been many viable infrastructure projects which have not been undertaken for the paucity of funds. The government issues bonds to mobilize funds for such projects.

Tax Benefits: The bonds carry tax advantages which enable funding of the projects at lower interest rates. An investor can save taxes on investments up to Rs 20, 000 under section 80CCF over and above the Rs 1, 00,000 exemptions applicable under section 80 C.

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Some notable points for Infrastructure Bonds India are

  • The investments in other products like mutual funds are market-linked and not assured and thus returns may not be repeated in the future.

  • A 3-year lock-in period in case of Infrastructure Bonds India offers reasonably good return and they are capable of delivering going forward.

  • The risks associated with mutual fund investment are much higher with respect to those in Infrastructure Bonds India.

  • Investors who are habituated to risk-free investment might be unwilling to venture into market-linked products.

  • Investments should be governed by investor's risk-appetite and not on the scale of returns.

  • The motive behind investing in Infrastructure Bonds India i.e. to save taxes, should not be so overbearing that it proves to be an infeasible proposition.

  • An investor with an appetite for risk can achieve two goals simultaneously, paying the taxes and investing in a well-diversified equity / balanced scheme.

Frequently Asked Questions

What is the Tax Treatment of interest on these Bonds?

The interest received is to be treated as income from other source and shall form part of the total income of the assessee in that financial year in which they are received.

Who are the eligible to invest in infrastructure bonds?

Only Indian individuals (major) and HUF are eligible to invest in these bonds.

Are these infrastructure bonds Tax Free?

No, the interest received in these bonds is not tax free and individual is liable to pay tax on the interest received

I don't have Demat Account. Can I apply?

Yes, but it is dependent on issuer if he allows to do so. Normally all issues have both options.

What is the maximum amount for which the benefit can be availed under section 80CCF?

Maximum benefit shall be Rs. 20,000 under section 80CCF of the Income Tax Act.

What is the tenure & lock-in period of these Tax Free Infrastructure Bonds?

The Tenure of these bonds is 10 years and the bonds have a lock-in period of 5 years

Can I get loan on these bonds?

No you cannot avail any loan pledging these bonds in the first 5 years. Thereafter, these bonds may be pledged to avail loans.

Can I accept Minor applications?

Minors are not allowed to invest in these Issues. So minor application even accompanied by Guardian is not acceptable. Have more questions before investing? Call us on 080 67974000 and ask our experts!

Can I invest in infra bonds online without submitting any documents?

The answer is Yes, if you have a demat account. You just need to fill up the online form and you are done.

Once subscribed, how will I know that if I have got bonds are not?

You will have to know the allotment date of the bonds and check your DP account after 2 or 3 days of allotment of the bonds. If the bonds are allotted, you will get them in your DP account, else your money will be returned in a few days.

Is the income through interest on these bonds tax-free?

No, You will need to pay tax on the interest you receive.

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