Regarding the Tax free bonds vs annuity a small comparison

vignesh 946
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Dear Pankaj,

A very Happy new year!!!

I start the new year with a basic doubt

Goal: Regular income every year like a passive asset(It is not like the monthly expenses will be covered once the interest from the tax free bonds come,they any how route this amount to any of the investments only). they have a corpus of 5 lakhs.

My father(Retired govt emp(53), 1 st tax slab) and mother(home maker also in the 1 st tax slab) .

I am doing a comparision between the annuity and the Tax free bonds(IIFCL)

Tax free bonds give a standard close to 8 percent tax free returns. But leading annuity provider gives a return upto 7.5 and that too taxable one.

I think for buying a annuity i can buy a tax free bonds. But they are in the 1 st tax slab only.

For annuity i have gone thru this below article and see lot of disadvantages. http://capitalmind.in/2010/01/low-annuity-returns-in-india/

Is it wise to have a chunk of money in the tax free bonds eventhough they are in the first slab and rather than buying an annuity?

Please enlighten me!!

Regards Vignesh

regular-income tax-free-bonds annuity-plans retirement-corpus
1 Answers

Unless there is compulsion to buy annuity plan (Like in NPS), there is no need to buy an annuity plan in India. Most of these plans don't generate good return.

If tax free bonds yield 8% tax free returns, why not rather invest into fixed deposits. Even if bank fixed deposit generates 9% ROI, after 10% Tax, it would yield more than 8%.

Even better choice would be debt based mutual funds with monthly dividend payout. Fixed maturity plans (FMP) would also provide good returns.

From other options, Post Office MIS (Monthly income scheme) can also be good choice.

Pankaj Batra5212
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