Top actively traded tax-free bonds that bring safety and returns for retirees

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Tax-free bonds are government securities whose interest is totally exempt from income tax and does not count toward total income under the terms of the Income Tax Act of 1961 section 10 (15) (iv) (h). Tax-free bonds are generally seen as a low-risk investment option by investors. These bonds have a minimum maturity of ten years. Typically, the government will use the proceeds from these bonds to fund infrastructure and housing initiatives.

In addition, these bonds are often issued by government-backed entities to raise funds for a specified purpose. These bonds have extremely low default risk. Municipal bonds, for example, are tax-free bonds with a fixed rate of interest and no default risk.


Moving forward, before investing in these, one should be aware of their qualities in order to better understand them. Here’s a partial list of some of them:


Tax-Free bonds have long maturities of 10, 15, or 20 years when issued.

Interest rate

In the secondary market, the return on these bonds ranges from 4.25 per cent to 5 per cent, which is rather enticing given the tax exemption on interest.

Low danger

Because these bonds are issued by government entities, the chances of principle and interest payment default are quite minimal. Tax-free bonds offer capital protection as well as a regular half-year and annual interest rate.


These bonds have no lock-in period and are easily traded in the secondary market and exchanges (NSE/BSE/WDM/RDM).

Transactions and Issuance

Tax-free bonds can be kept in either physical or Demat form. These bonds can also be purchased on the secondary market.

Benefits to senior citizens

High-net-worth individuals, trusts, HUF members, cooperative banks, and qualifying institutional investors can purchase tax-free bonds. These tax-free bonds are advantageous to investors in the highest tax bracket. Longer tenure, lower default risk, and fixed income for a longer period, on the other hand, make such bonds a good option for investors such as older folks.

Actively traded tax-free bonds


The PFC was founded by the government in 1986 as an entity dedicated to subsidising and growing India’s power sector. As of March 31, 2021, PFC’s net NPA was 2.09 per cent. CRISIL, ICRA, and CARE have reaffirmed PFC’s AAA ratings on debt securities.


NABARD is an apex policy organisation and nodal body for agriculture and rural development, with close ties to the government. In 9MFY21, NABARD’s net non-performing loan ratio was 0.15 per cent. The entity’s tax-free bonds have been graded AAA by India Ratings.


Housing and Urban Development Corporation (HUDCO) is a listed Miniratna public sector firm under the Ministry of Housing and Urban Affairs. In FY21, its net NPA ratio remained constant at 0.5 per cent. The entity’s tax-free bonds have been graded AAA by India Ratings and ICRA.


Indian Railway Finance Corporation Ltd (IRFC) is the Indian Railways’ dedicated market borrowing arm. The IRFC is a Schedule ‘A’ public sector firm, with the government owning the majority of the stock. According to the CARE ratings, it has a track record of timely and consistent parent support in the form of monthly money infusions to ensure a comfortable capital structure. IRFC has retained AAA credit ratings from CRISIL, ICRA, and CARE.


REC is a Navratna enterprise that reports to the Ministry of Power. The government views REC as strategically essential since it plays an important role in the power sector, not only by providing funding but also by implementing the government’s power sector policies. As of December 31, 2020, its net NPA was 2%. The highest grade of AAA has been maintained by CRISIL, ICRA, and CARE ratings for REC Ltd’s long-term market borrowing.


Due to the Government of India’s ongoing backing for its projects, NHAI enjoys significant financial freedom. CRISIL, CARE, and Brickwork have all been assigned the highest rating of AAA.

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