Our VIEW on TAX FREE BONDS and Assured Return Giving Pension Plans

December 8, 15

Our VIEW on TAX FREE BONDS and Assured Return Giving Pension Plans

Greetings from Hitesh! Like Gold, Mulla is also favorite with our readers. Our last post on Mulla has been able to touch many hearts and I am happy with the change. I have been receiving many requests from my regular readers and clients to guide them for TAX FREE Bonds and Assured Return Giving Pension Plans. Let me deal with them.

Unique Selling Point:-

Both of them are giving assured returns for a period of 10 years to 20 years and in case of pension plans you get your pension for life time at a fixed rate. Most rates are in the range of 7% to 7.75%. Tax-free bonds interest is not taxable, while pension will be added to your income of the year for computation of your taxable income.

Their arguments is simple – you will get interest at around 7% for coming 20 years or for life time in case of pension. If the rate of interest goes down – your will have fixed rate and that is good for you for coming 20 years. What’s more – if you are in 30% tax bracket – you effective rate of return is approx. 9.5% (7.25% + 30% of 7%). There will not be TDS on pension – so you can plan your TAX and do the needful to save income tax!! In short, you will have to pay the TAX!!

What are our Experiences?

About 15 years back, we had the same situations in the market where banks were offering fixed deposits at 7% and housing finance companies were offering housing loans at just 7.25% floating rate and 8.50% fixed rate for 15 years. Now a day – they have stopped offering 15 years loan at a fixed rate.

At that time we had categorically said to our clients and relatives who bought flats with bank loans – to go for Fixed rate loan. Those who believed us and followed our advice were blessing us when the rate of interest touched 12%!! Even today you do not get housing loan at 8.5%!!

What is our view on the BONDS?

Our economy is reviving and we will not see the rate going down from here in coming 2 to 3 years. At 7% we are near the bottom rate of interest as far as India’s long-term interest rate trend is concerned. It has always bounced back from here.

So, chances are bright that they may offer more interest rates in 2 to 3 years time looking at the economies performance. So, it does not make any sense to invest for 10 to 20 years at around 7%.

The best thing would be to keep money in Fixed deposit for a year or two and wait to see how the economy performs. If the rate cycles start reviving – you will have decent FD rates – so no need to lock your capital for 20 years or for life. Your maximum loss here would be of income tax you have to pay on the interest you earn on your FD. This will be more than compensated when the rate goes up to 10% or more.

Moreover, there is no exit option in pension plans. E.g. you have invested Rs.1 Cr in the pension plan and you need money overnight for some emergencies – you do not get money!!  I have not checked about loan option in the plans. Moreover, loan will not be FREE to me. My question is - why should I take loans when I have my money?

For bonds they are providing liquidity through listing on EXCHANGE. If the rate goes up as I am expecting – these bonds will not be SALEABLE. Nobody will buy your 7% bond from the market when the current rate goes up to 10% or more!! Just ask yourself - will you buy? 

You will have huge loss. Many DEBT funds in the WEST lost Billions in this way. This will surely happen in coming 5 years. 10 years and 20 years is very long a time.

Just see USA is talking about rate increase, if the revival starts – you will curse yourself for locking your money for 20 years or lifetime. I am going to deal with USA’s SCAM on WHY THE REVIVAL WILL COME IN MY NEXT POST.

What is my Personal View?

I don’t suggest investing in present schemes. Wait for better options. Best option would be to come to EQUITY market – but for any reason if you do not want to come – just keep your money in a Bank Deposit for 1 to 2 years and wait for the economy to revive. You will bless me for life.

What Next?

We are open for yearly subscription for 2016. You can also take a trial of 3 months if you wish.

If you want to know how would be your 2016 and beyond based on your HOROSCOPE or birthdate – you can contact us. It’s free for our clients. Non-client’s can have it at nominal fees.

Your decisions today will decide your destiny in 2016. So, make correct and timely decision to join us NOW.

Wish You ALL A HAPPY TUESDAY.

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Live With Passion…Invest With Passion.

Hitesh Parikh.