Informed investors rarely make decisions in isolation—they build them on a foundation of clear thinking about risk, return, and taxation. It is this belief that keeps Ashutosh Financial Services organising sessions where such thinking can take shape, giving people the tools to evaluate opportunities on their own terms rather than through hearsay or habit.
On 15th January 2020, the firm hosted a webinar titled “Attractive Tax-Free Interest Income – Govt. of India Undertaking Tax Free Bonds,” addressed specifically to high-net-worth individuals. The session was led by Mr. Daxesh D. Kothari, Tax and Financial Consultant and MD & CEO of Ashutosh Financial Services. Given that HNI investors typically fall into the highest income tax brackets, the choice of topic was deliberate: tax-free bonds are structured in a way that benefits precisely this category of investor the most, making the subject directly relevant to the audience in attendance.
The session opened by explaining what tax-free bonds actually are. These are long-term debt instruments originally issued by government of India undertakings such as Power Finance Corporation, the National Highways Authority of India, Rural Electrification Corporation, and the Housing & Urban Development Corporation. What sets them apart from most fixed-income instruments is straightforward but significant: the interest earned on these bonds is entirely exempt from income tax in the hands of the investor. For someone paying tax at the top slab, this exemption changes the real, effective return quite meaningfully compared to a taxable alternative offering a similar headline rate.
An important clarification made during the session was around how these bonds can actually be acquired today. Since they were issued in earlier years, they are no longer available through a fresh public offering or IPO. Investors wanting exposure to them now must purchase existing bonds through the secondary market, that is, buying them from other investors rather than subscribing directly. The bonds being discussed carry residual maturities of roughly 9, 11, 14, and 16 years, meaning the tenure remaining until they are redeemed varies depending on when they were originally issued.
A central part of the discussion focused on yield to maturity, or YTM, and why it matters more than the bond’s stated coupon rate. YTM reflects the actual return an investor can expect if the bond is held until maturity, factoring in that the investor will receive the bond’s face value at redemption, which may differ from the market price actually paid to acquire it today. As of 1st January 2020, the tax-free YTM on these bonds stood at 5.69 percent. Since this return is entirely tax exempt, it needs to be compared against taxable alternatives on a like-for-like basis, which is where the discussion moved next.
To make this comparison meaningful, the session translated the tax-free yield into its pre-tax equivalent at different income tax slabs. For an investor taxed at 31.20 percent, the equivalent pre-tax return works out to 8.27 percent. For someone in the 20.80 percent bracket, it comes to 7.19 percent. In other words, a taxable instrument would need to offer returns in that range just to match what these tax-free bonds already deliver after accounting for tax. This was set against prevailing five-year fixed deposit rates from leading public sector banks—6.10 percent from State Bank of India and 6.25 percent from Bank of Baroda—showing that the tax-free bond yield exceeded these fixed deposit rates by roughly 2.17 percent on a comparable basis.
Taken together, the session built a fairly clear picture of who stands to benefit most from this category of investment: individuals accustomed to parking money in bank fixed deposits, those taxed at 30 percent plus surcharge, and investors comfortable locking in a fixed rate of return over a genuinely long horizon of nine to sixteen years. For this profile of investor, the combination of tax exemption, government-backed issuers, and a fixed long-term rate addresses a real and recurring need—predictable income without the erosion that taxation typically brings.
Sessions like this one reflect why continuous financial education remains central to how Ashutosh Financial Services engages with its audience. Markets and instruments evolve, tax rules shift, and what qualifies as an efficient investment choice changes accordingly. Keeping investors informed about these nuances, one concept at a time, is a responsibility the firm continues to take seriously through initiatives such as this.
