Everything You Need to Know About Capital Gain Bonds
Are you looking for ways to save taxes on the sale of property or other big asset? One of the best ways of doing that you can find in India is capital gain bonds . In this simple guide by Invest Global , we'll outline how they work, how they help you save taxes, and how they compare with other investments like sip mutual funds or the highest fixed deposit rate options.
What Are Bonds?
Bonds are investment products that give you back a fixed interest periodically, your return your whole money at maturity. They are highly sought after in developed nations and are gaining popularity in India as well, with declining interest rates of banks.
How Do Bonds Work?
You can buy bonds in two ways:
- Primary Market: When the bond is first issued (at face value).
- Secondary Market: Buy/sell on stock exchanges (may be priced higher or lower than face value).
You receive interest (also referred to as a coupon) at regular intervals. At maturity, you repaid the face value of the bond. You require a Demat account to invest in the secondary market.
Key Terms in Bond Investing
Secured vs Unsecured Bonds
- Secured: Backed by company assets. Safer.
- Unsecured: No backing. More risk.
Face Value
This is the original value of the bond. You'll get this amount at the end.
Coupon Rate
The interest you earn on the face value. For example, 8% on ₹1,000 = ₹80 interest/year.
Payment Frequency
Interest can be paid monthly, quarterly, half-yearly, or annually.
Redemption Date
The date when the bond matures and you get your money back.
Accrued Interest
If you purchase a bond after the interest has already begun being paid, you might have to pay more to cover the interest that it has already earned. This is factored it.
Yield to Maturity (YTM)
This is the total return you earn if you keep the bond until it matures. Higher YTM means better returns.
Duration
It measures how sensitive the bond price is to changes in interest rates. Longer duration = more risk from rate changes.
Bond Ratings
Institutions like ICRA and CRISIL rate bonds. Increased risk is denoted by lower grading. Lower-graded bonds pay higher but are more risky.
Types of Bonds
Corporate Bonds
Issued by companies, usually secured.
Sovereign Gold Bonds (SGBs)
Backed by gold and issued by the RBI.
Government Securities (G-Secs)
Issued by the government, very safe.
Non-Convertible Debentures (NCDs)
Unsecured corporate bonds.
RBI Floating Rate Bonds
7-year tenure, interest changes every 6 months. Current rate: 7.15%.
What Are Capital Gain Bonds?
If you sell a house or land and make a long-term capital gain (property held for more than 2 years), you'll need to pay tax. But the Income Tax Act allows you to save tax by investing in capital gain bonds under Section 54EC.
Key Features:
- Invest the capital gain within 6 months of sale
- Maximum investment: ₹50 lakhs
- Lock-in period: 5 years (can't sell early)
- Interest: Usually around 5% to 5.25% (taxable)
- No tax on the capital gain if you invest in these bonds
Eligible Capital Gain Bonds:
- REC - Rural Electrification Corporation
- PFC - Power Finance Corporation
- NHAI - National Highways Authority of India
- IRFC - Indian Railways Finance Corporation
These are safe options backed by the Government of India and are among the best tax-saving alternatives available.
How to Invest in Capital Gain Bonds
You can invest in capital gain bonds through:
- Physical forms (with PAN and ID proof)
- Demat account (online)
- Directly with the licensed institutions or banks
Or just reach out to Invest Global - our specialists will tak you through the entire process with ease.
How Do Capital Gain Bonds Compare to Other Options?
| Feature | Capital Gain Bonds | SIP Mutual Funds | Fixed Deposits |
|---|---|---|---|
| Tax Saving | Yes (Under Sec 54EC) | No | No |
| Lock-in Period | 5 Years | None (Flexible) | Varies |
| Risk | Low (Govt-backed) | Medium to High | Low |
| Return Potential | Moderate (~5.25%) | High (market-linked) | Low to Moderate |
| Who Should Invest | Property Sellers | Long-term Investors | Conservative Investors |
| Keyword Match | capital gain bonds | sip mutual funds | highest fixed deposit rate |
Capital Gain Bonds and Insurance - A Smart Mix?
Most investors ask: Should I also avail insurance while investing? The reply is a big yes! Capital gain bonds save tax, but insurance protects life and loved ones. At Invest Global, we recommend merging financial security with life protection for an integrated wealth plan.
Why Choose Invest Global for Bond Investments?
- We make complicated financial products simple.
- Assist you to compare highest fixed deposit rate options, SIP, mutual funds, and capital gain bonds.
- End-to-end investment assistance.
- Transparent advice you can trust
Conclusion - Are Capital Gain Bonds Right for You?
If you've sold a property and want to save tax, capital gain bonds are a great choice. They're government-backed, safe, and easy to invest in. Whether you're a beginner or experienced investor, they can fit well into your long-term tax-saving strategy.
Contact Invest Global today to start your investment journey with capital gain bonds and explore how they compare to sip mutual funds, insurance, and even the highest fixed deposit rate options!
