This document discusses fixed income investment options and recommends tax-free bonds. It notes that while fixed deposits offer stability, after-tax returns are often lower than inflation, meaning investors' capital erodes over time. To boost returns, it suggests either higher-yielding assets like equity and gold or reducing taxes through options like fixed maturity plans and tax-free bonds. Tax-free bonds issued by government companies offer tax-free interest rates of 7.69-11.10%, higher than most other fixed income alternatives. The document encourages contacting Taurus Capital Advisors for more details on investing in tax-free bonds.

1. Why you should invest in TAX
FREE BONDS
Taurus Capital Advisors
January, 2013

2. Do you invest in Fixed Deposits
• If you invest in Fixed Deposits, it is primarily because of any/ or all of the
following reasons
• Certainty of returns – a fixed deposit has a fixed rate of return
• No risk to the capital – Banks (especially PSU banks) are here to stay
forever
• Regular income – Interest income is received at regular intervals
• Ease of operations – You can go to your bank’s branch and they open
your fixed deposit
Fixed Deposits are a very good investment to protect your
capital and earn decent return

3. What are Real Returns?
• I would like to explain this with an example
• Mr. X, made a fixed deposit for a fixed rate of 9.0% for 3 years
• Which means he would get 9% every year
• This income is taxable as per the tax slab of Mr. X, assuming he is in
the highest tax bracket (i.e. 30.9%)
• After tax return for this fixed deposit is then – 6.22%
• In other words Rs.10,000 in fixed deposit gives him Rs. 622 in hand
• Inflation – an indicator of increase in cost of living
• Currently inflation in India is around 8-9% (average of last 3 years)
• Real Returns = Nominal Returns – Inflation
• In this case Mr. X, has a negative real returns
• In simple words Mr. X is earning less then his increase in cost of living,
and in some years his capital would start eroding
Are Fixed Deposits generating wealth?

4. So, how to increase Real Return?
• As you can guess it yourself, there are two ways to do that
• Choose an investment which has higher rate of return, and/or
• Investment where tax impact is lesser
• Asset classes like Equity, Gold and Property can generate higher returns,
but they are riskier too. There could be a risk to the capital too.
• Then how do we improve returns or reduce tax burden, and still remain in
the same asset class of Fixed Income
• Fixed Deposits are a type of fixed income instruments
Choosing a better fixed income product can help increase
returns or reduce tax burden

5. Fixed Income Options
1
Fixed Deposits with banks or housing finance companies like HDFC
Annual or quarterly interest payment, instead of cumulative
Return
★★★
Tax
★★
Liquidity
★★★★
2
Fixed Maturity Plans (FMPs) by mutual fund houses
Reduce tax burden by taking benefit of indexation
Return
★★★★
Tax
★★★★★
Liquidity
★★
3
Tax Free Bonds by PSU entities
Annual interest payment, which would be Tax free
Return
★★★★★
Tax
★★★★★
Liquidity
★★★★

6. Introduction to Tax Free Bonds
• Tax free bonds are offered by government companies
• Money raised is invested in infrastructure development in the country
• Interest earned on such bonds is Tax Free
• Current & upcoming offerings are given below
Issuer
Issue Start
Issue End
Coupon
Coupon
(10 Years)
(15 Years)
India Infrastructure Ongoing
11-Jan-13
7.69%
7.86%
Finance Co. Ltd.
HUDCO
9-Jan-13
22-Jan-13
7.84%
8.01%
Indian Railway Finance 21-Jan-13
29-Jan-13
7.68%
7.84%
Co.

7. Some numbers
Before Tax
After Tax
Fixed Deposits
8.75% to 9.65%
6.00% to 6.70%
FMPs
8.50% to 8.75%
8.50% to 8.75%1
(Double indexation)
Tax Free Bonds
11.10%2
7.69%
1. Negligible tax impact due to double indexation, which is the effect of inflation
2. Is the pre-tax yield, assuming the individual is in the highest tax bracket

8. Thank you
For further details & investing
Please contact
Taurus Capital Advisors
+91-98290-07926
investments@tauruscap.in