Fixed Deposits
What are Company Fixed Deposits?
The deposits made by investors in companies that earn a fixed rate of return over a period of time are called Company Fixed Deposits. Along with manufacturing companies, financial institutions and Non-Banking Finance Companies (NBFCs) also accept these deposits.
Benefits of Company Fixed Deposits:
- Higher interest rate: The rate of interest is 2-4 percent high, as compared to the interest rate offered by banks on fixed deposits
- Regular income: Depending on the scheme, investors have the option to receive interest at monthly/quarterly/half-yearly/yearly intervals
- Lock-in period: The minimum lock-in period for most of the schemes is six months, i.e. investors can withdraw their money post six months, anytime
- TDS: TDS is not applicable if interest earned is equals to or less than 5,000 for a year in a single company.
Factors to be considered
- Investors must carefully read the application form
- Check the rating of the company before investing
- Do a background check of the company before putting money into it
- Companies may change the interest rates on the fixed deposit schemes without any prior notice
Bond
What is a bond?
A bond is a debt security, in which the authorised issuer – company, financial institution, or Government, offers regular or fixed payment of interest in return for the money borrowed by the said issuer. It is for a certain period of time.
Features
- When you purchase a bond, the authorised issuer borrows money from you for a fixed period of time.
- This money earns you a predetermined interest rate at regular intervals.
- The principal amount is repaid at the end of the maturity period.
How are bonds different from stock
- Bond holders are lenders whereas stock holders are owners in the firm/organisation/company.
- Bonds have a defined term of maturity while stocks have no fixed time period.
- Securities investments are subject to risks. Please read the Offer Document/Prospectus, the issue terms and conditions, carefully before taking any investment decision.
Sovereign Gold Bonds
Sovereign Gold Bonds are the safest way to buy digital Gold, as they are issued by Govt. of India, You not only benefit from possible Asset appreciation opportunity, but are also assured 2.50%per annum interest.
| Item | Details |
|---|---|
| Product Name | Sovereign Gold Bonds |
| Issuance | To be issued by Reserve Bank India on behalf of the Government of India. |
| Denomination | The Bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram. |
| Tenor | The tenor of the Bond will be for a period of 8 years with exit option in 5th year, to be exercised on the interest payment dates. |
| Minimum size | Minimum permissible investment will be 1 gram of gold. |
| Maximum limit | The maximum limit of subscribed shall be 4 KG for individual, 4 Kg for HUF and 20 Kg for trusts and similar entities per fiscal (April-March) notified by the Government from time to time. A self-declaration to this effect will be obtained. The annual ceiling will include bonds subscribed under different tranches during initial issuance by Government and those purchase from the Secondary Market. |
| Joint holder | In case of joint holding, the investment limit of 4 KG will be applied to the first applicant only. |
| Issue price | Price of Bond will be fixed in Indian Rupees on the basis of simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Limited for the last 3 working days of the week preceding the subscription period. The issue price of the Gold Bonds will be Rs. 50 per gram less for those who subscribe online and pay through digital mode. |
| Payment option | Payment for the Bonds will be through cash payment (upto a maximum of Rs. 20,000) or demand draft or cheque or electronic banking. |
| Issuance form | The Gold Bonds will be issued as Government of India Stocks under GS Act, 2006. The investors will be issued a Holding Certificate for the same. The Bonds are eligible for conversion into demat form. |
| Redemption price | The redemption price will be in Indian Rupees based on simple average of closing price of gold of 999 purity of previous 3 working days published by IBJA. |
| Sales channel | Bonds will be sold through banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices as may be notified and recognised stock exchanges viz., National Stock Exchange of India Ltd and Bombay Stock Exchange Ltd, either directly or through agents. |
| Interest rate | The investors will be compensated at a fixed rate of 2.5% per annum payable semi-annually on the nominal value. |
| Collateral | Bonds can be used as collateral for loans. The loan-to-value (LTV) ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time. The lien on the bond shall be marked in the depository by the authorised banks. Note: The loan against SGBs would be subject to decision of the bank/financing agency, and cannot be inferred as a matter of right. |
| KYC Documentation | Know-your-customer (KYC) norms will be the same as that for purchase of physical gold. KYC documents such as Voter ID, Aadhaar card/PAN or TAN /Passport will be required. |
| Tax treatment | The interest on Gold Bonds shall be taxable as per the provision of Income Tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long term capital gains arising to any person on transfer of bond |
| Tradability | Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI. |
| SLR eligibility | Bonds acquired by the banks through the process of invoking lien/hypothecation/pledge alone, shall be counted towards Statutory Liquidity Ratio. |
| Commission | Commission for distribution of the bond shall be paid at the rate of 1% of the total subscription received by the receiving offices and receiving offices shall share at least 50% of the commission so received with the agents or sub agents for the business procured through them. |
Benefits of Of Sovereign Gold Bond Schemes
- Attractive Interest with asset appreciation opportunity
- Redemption is linked to Gold Price
- Elimination of risk and cost of storage
- Exempt from Capital gains tax, if held till maturity
Hassle free: Ownership of gold without any physical possession (No risks and no cost of storage)
Tax treatment: The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long term capital gains arising to any person on transfer of bond.
Tradability: Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI. Transferability: Bonds shall be transferable by execution of an Instrument of transfer in accordance with the provisions of the Government Securities Act.
Tax free Bonds
What is a tax-free bond?
- Security issued by a company, financial institution or the government
- Offers regular or fixed payment of interest in return for borrowed money for a specified period
Why are these bonds called "tax-free"?
You don’t have to pay any tax on the interest earned from these bonds (Income Tax Act, 1961)
Who provides tax-free bonds?
- Government-backed entities
- Public undertakings, such as IRFC, PFC, NHAI, HUDCO, REC, NTPC, NHPC, Indian Renewable Energy Development Agency (IREDA)
How do tax-free bonds work?
- Tenure: You can invest for up to 10, 15, or 20 years – it’s your choice.
- Liquidity: You can easily sell your bonds any time before maturity.
- Safe investment option:You can be sure of receiving the promised regular interest.
- Tax-exempted:You are not required to pay any taxes on the interest you earn.
- Demat account is optional:You can hold these bonds in physical form, too.
Let’s look at an example to understand this better.
| Amount invested(10 Years) | Rate of interest per year | Total amount of interest per year | Interest received annually |
|---|---|---|---|
| Rs.1,00,000 | 7.5% | Rs. 7,500 | Rs. 7,500 |
Though the interest received from these bonds is non-taxable, any profits derived by selling these bonds in the secondary market are liable to taxes.
Who is eligible to invest in tax-free bonds?
- Retail Individual Investors (RIIs) - Including members of Hindu undivided family (HUF) and Non-Resident Indians (NRIs).
- High Net-worth Individuals (HNIs) - who have a low-risk appetite and can invest up to Rs. 10 lakhs.
- Qualified Institutional Buyers (QIBs) - who have been defined under the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000.
- Corporate, trusts, co-operative banks, regional rural banks
How does one invest in tax-free bonds?
- You can avail these bonds in physical form as well as in Demat mode.
- If you are investing in tax-free bonds during the public issue, you have the option to apply online as well as offline for it.
- If you are investing in tax-free bonds after the public issue, you can invest via your trading account, just like you invest in shares.
Note: Currently, there is no tax-free bond issue in the primary market. If anyone interested can invest through the secondary market.
Why invest in tax-free bonds?
- Tax-free income
- Low risk
- Easy liquidity
- Demat optional
- Ratings by various agencies available
54 EC Bonds
These bonds are exempted from income tax and have attractive interest rate. Since company have better credit rating they have better safety on returns, also option of holding bonds in "Demat Form" makes your investment easy to handle and monitor.
Capital Gain be saved Under Sec 54EC or Sec 54F, if the land or property sold is non agriculture. We deal in such bonds which qualify for Sec 54EC Bonds.
- Tax can be saved under Section 54 EC by investing in bonds
- Tax can be saved under Section 54 F by investment in New residential house
- Long Term Capital Asset Long term assets means any capital asset held by assessee for more than 3 Years.
- If assessee has sold the Long term capital asset during the previous year and made a long term capital gain then he can invest money of capital gain in Capital gain bonds and can save tax on long term capital gain.
- Assessee here means all type of assessees,likeindividual,firm company etc.
- Amount to be invested in bonds is only capital gain not net consideration received on sale of long term capital asset
- Amount exempted under this section will be amount of capital gain or amount invested in capital gain bond whichever is lower maximum up to 50Lakh(see note below)
- These Bonds Maturity Period is Three years
- Capital gain bonds eligible under this section are now can be issued only by REC or NABARD
- Bonds cannot be pledged ,sold transfer before completion of three year from purchase of bonds ,and in case its transferred then amount capital gain exempted on investment in these bonds will be made taxable in that previous year as Long term capital gain .
- Amount of capital gain should be invested in Capital gain bond within 6 Month from date of transfer/sale of capital asset .
One more good news for you that 50 lakh Limit is for each financial year. As your six month limit is fall in two different Financial years so you can save 50 lakh in fy 2008-09 and 50 lakh in 2009-10.so one can save upto maximum of one crore of capital gain u/s 54EC.