NABARD Bhavishya Nirman Bonds

Bhavishya Nirman Bonds ( BNB) are currently on offer from National Bank for Agricultural and Rural Development ( NABARD ).

In their ads, NABARD are proudly claiming an interest rate of 12.18%, but Investors must keep in mind 12.18% being advertised is the simple rate of interest. The compounded interest rate is 8.93%
This may seem a bit on the lower side ( comparing the high interest rates, currently prevalent for Bank FDs ), but it has some benefits vis-a-vis Bank FDs.

Let analyse BNB features to understand it better:
1. Every BNB has a face value of Rs. 20,000/- and the issue price is Rs. 8500/- which means that one can buy the bond certificate for Rs. 8500/- now and encash it after 10 years for Rs. 20,000/-

2. It is a zero coupon bond ( i.e. interest rate offered is 0%), but all benefits come in terms of capital appreciation ( a bond bought at Rs. 8500/- appreciates to Rs. 20,000/- in one year ). Since the income comes in form of capital gains and not as interest earned on deposit, different tax rules apply. The gains are taxable under long term capital gains which carry a lower tax rate.

3. BNB are tradeable on BSE ( Bombay Stock Exchange ) to provide early exit option for investors.

4. But there are no tax savings available under 80C for investments under this bond.

People in higher tax slabs looking for tax savings in terms of lower tax would like to invest in these. But keep in mind tax laws may change!