I applied for two tax-free bond issues. However, the allotment was not satisfactory. I have a surplus of Rs 80,000. Is it advisable to buy these bonds in the secondary market? How do I determine if the price is favourable? Do i need to consider other factors before buying?
I assume you are writing about the recent tax-free bonds from NHAI and PFC. Retail investors got a good allotment in these bonds. It is surprising how you did not get a satisfactory one.
However, you could buy such bonds from the secondary market, since the interest rate cycle has hopefully peaked and rates could come down, leading to higher bond prices. Please note that these bonds are trading at a premium to their issue price. You would have to calculate the yield at which these are available, to determine whether the yields favour you. You could also wait for the proposed REC tax-free bonds that may come in March.
My friend suggested I pick a pension mutual fund for tax-saving. How are these funds performing? Are there any warning signs one must look out for? I plan to invest Rs 30,000 for tax-saving purposes this year. The amount may vary next year, depending on the tax-saving needs.
You could opt for a pension plan in a mutual fund for tax-saving. However, there are certain points you need to be aware of before investing. First, these are debt-oriented funds and their returns could be lower than ELSS over the long term, though they could be less volatile than ELSS in the interim. Second, there are only a few such funds to choose from. Third, since these are pension products, they are meant only for very long-term investors, since fund houses may impose stiff exit loads till a certain age, even after the mandatory three-year lock-in. There may be other factors also, all of which you should evaluate before investing.
The writer is CEO, Dalmia Securities,
Views expressed are his own.
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