Majority of investors claiming tax benefits under Section 88 of the Income Tax Act avails conventional options of taking insurance and investing in Public Provident Fund and National Savings Certificate.

A total sum of Rs 100,000 that can be claimed as rebates, the aforementioned option account for only Rs 70,000, and the balance Rs 30,000 is reserved for investments in infrastructure bonds amongst others. These investments are in the form of shares, bonds, debentures and are issued by public financial institutions. These are subject to a 3-year lock-in period. Any redemption prior to its maturity nullifies the tax benefits claimed at the time of making the investment. The Infrastructure Bonds India by a leading public financial institution, a few years back, offered coupon rate of 5.50% and 5.64%, respectively. Inflation shoots up the interest rates accordingly. The solution lies in balancing the two, i.e., the benefits of an investment vehicle which offers assured yet modest returns coupled with tax benefits on one hand and a high risk-high return proposition on the other.

Some notable points for Infrastructure Bonds India are –

• The investments in other products like mutual funds are market-linked and not assured and thus returns may not be repeated in the future.
• A 3-year lock-in period in case of Infrastructure Bonds India offers reasonably good return and they are capable of delivering going forward.
• The risks associated with mutual fund investment are much higher with respect to those in Infrastructure Bonds India.
• Investors who are habituated to risk-free investment might be unwilling to venture into market-linked products.
• Investments should be governed by investor’s risk-appetite and not on the scale of returns.
• The motive behind investing in Infrastructure Bonds India i.e. to save taxes, should not be so overbearing that it proves to be an infeasible proposition.
• An investor with an appetite for risk can achieve two goals simultaneously, paying the taxes and investing in a well-diversified equity / balanced scheme.