Saturday, January 8, 2011

INFRASTRUCTURE TAX SAVINGS BONDS - SHOULD YOU INVEST??

January to March is that time of the year when most of us are rushing towards making our mandatory"tax saving investments". While we are all well versed with tax saving options available to us under section 80CC, but, this financial year government has offered us another option where we can invest in infrastructure bonds and save taxes. Here, an investor can invest upto maximum of Rs 20000 which can be claimed as deduction from his taxable income. This is over and above RS 1 lac that you can save under Sec 80 C. SO question to ask is should you and I invest in it?

Lets first examine the pros of this option
1. Additional tax saving of Rs 6600 if you are under 30% tax bracket.


Other than the above mentioned benefit , there isn't any other major benefit associated with investing in these bonds.

Now , lets look at cons too
1. High lock in period - Most of these bonds are of 10 year tenure where minimum lockin is of 5 years and then these bonds will be listed on exchanges where you can sell it provided you find a buyer.
2. Modest post tax returns - The returns offered by these bonds are between 7-8% which is modest at best considering the high lockin.

Should you invest?
The short answer to this is no if you are a savvy investor since the lockin is high and the returns are nothing to rave about.

So what should you do ?
One can always invest this money in equity or well diversified mututal fund which will surely give better returns in 5-10 years , besides offering liquidity which these bonds don't offer. Always remember that any "tax saving investment" first MUST qualify as GOOD INVESTMENT and then if it helps save you tax then it is even better , but never, invest in any policy/plan or bond just because it helps you save tax.

Happy investing!!