Tax free bonds are issued by fully owned government enterprises to raise funds for infrastructure and housing. These bonds have a complete tax exemption on interest income. They deliver superior post tax returns as compared to fixed deposits.
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|Tax Free Bonds||Fixed Deposits|
|Returns||~4.5% yield (No-tax)||~5.5% before tax, 3.5-4% after tax|
|Liquidity||Low - can be sold in secondary markets||High - can be redeemed before maturity with penalty|
|Issuer||Public Sector Companies such as NHAI, IRFC, PFC||Banks|