Synopsis
“If your holding in tax-free bonds is small, switching to PPF is the best option. Sell slowly and invest Rs 1.5 lakh per annum in PPF,” says Anil Rego, Founder & CEO, Right Horizons. In addition to the tax free status, current returns (7.1%) offered by PPF is also good.
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Fixed deposits from PSU banks or large private sector banks offer only around 6%.
High net worth investors continue to chase listed tax-free bonds, as returns from other safe debt products have fallen. Since the interest is tax free, pre-tax effective returns are also high. This rush is pushing up prices of tax-free bonds and bringing down their yield to maturity (ytm). The ytm on most of these bonds are only around 4.5% now.