What Are The Key Advantages Of Investing In PSU Bonds?
The PSU bonds investment opportunity is worth considering because of its tax benefits and guaranteed yield. The current rate for these bonds is about 8%. If you’re looking for more regular income and want to get rid of your shares, consider this option an alternative.
What is a PSU Bond?
PSU bonds are corporate bonds issued by Public Sector Undertakings (PSUs) in India. PSUs are owned by the Government of India and are some of the most financially stable companies in the country. PSU bonds are one of India’s safest investments and offer higher returns than bank fixed deposits.
PSU bonds offer many benefits to investors, including:
1. Safety: PSU bonds are considered one of India’s safest investments. This is because PSUs are owned by the Indian government and are, therefore, less likely to default on payments.
2. High returns: Interest rates on PSU bonds are generally higher than those offered by bank fixed deposits. This makes them an attractive option for investors looking for higher investment returns.
3. Flexibility: PSU bonds offer investors greater flexibility than bank deposits. Investors can receive interest payments monthly, quarterly, or annually, depending on their preferences.
4. Tax benefits: Interest income from PSU bonds is exempt from tax up to Rs. 5,000 per annum. This makes them a beneficial investment option for tax-saving purposes.
How to Invest in a PSU Bond
There are many reasons to invest in bonds. They are a safe and secure investment, offer a high return rate, and are tax-free. Here is a step-by-step guide on how to invest in a PSU bond:
1. Decide how much you want to invest. You can support any amount you wish, but most bonds have a minimum investment of $1,000.
2. Choose the term of the bond. The term is the length of time that you want to invest for. PSU bonds typically have terms of 5, 10, or 20 years.
3. Figure out the interest rate. Interest rates on PSU bonds are fixed so that you will know your interest rate for the entire term.
4. calculate the interest payment schedule. Will be made every six months your interest payments. You can choose to have your interest payments paid directly into your bank account or reinvest them into more bonds (this is called compounding).
5. When the term is up, you will get your original investment back plus any interest accrued.
Security of Bonds
PSU bonds are considered one of the safest investments because the government backs them. This means there is minimal risk involved in investing in these bonds. Moreover, PSU bonds offer a higher interest rate than other types of bonds, which makes them an attractive investment option.
Disadvantages of Investing
Potential investors should be aware of a few critical disadvantages of investing in PSU bonds:
These bonds generally have a more extended maturity period than other types of bonds, which means that the investor is committed to the investment for a more extended time.
PSU bonds typically offer lower interest rates than other bonds, which can impact the overall return on investment.
PSU bonds may be subject to government regulation or restrictions, which could affect the liquidity of the investment.