Tax Free Bonds

The primary equity market in India is pretty much dead, despite the stock market indices touching new all time highs. The reason is that the Sensex and Nifty are being driven by a few sectors which are seeing sky high valuation, while the rest of the economy continues to remain in the doldrums. You would expect a spate of IPOs with the indices at new highs, but this has not been the case. The reason is that the sentiment remains extremely low and retail investors have completely abandoned the stock market after being burned a number of times. This rally also seems hollow and the reason for the rise is the global risk due to continued Fed money printing.

Some good news for the investors is that the Indian government owned companies are coming out with tax free bonds with high yields. NHPC and PFC recently came out with bonds where they are giving ~9% interest rate for 20 years. This is pretty awesome in my view, as 9% is a great return especially if you don’t have to worry about tax. The only catch is that liquidity is going to be a big problem, as the bond market in India is not developed and hardly any bond trading takes place in NSE and BSE. So even though these bonds will be listed, it will be hard to sell them. But not a big problem as you can continue to get a high yield for 20 years. So if you have spare cash, then invest some of it in these bonds. 9% is nothing to sneeze at, considering that these bonds have a quasi government guarantee as well. 9% risk fee is as good as it gets.

Read more at NSE India website.