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The Budget 2024 has created tax arbitrage between listed bonds and debt funds.
While any gains from debt funds will be taxed at marginal rate of taxation irrespective of holding period, the long term capital gains (LTCG) in listed bonds will be taxed at 12.5% post 12 months.
The short term capital gains (STCG) on such bonds is in line with debt funds i.e. marginal rate of taxation.
Kunal Singh Kochar, Senior Vice President, PhillipCapital India feels that investing in listed bonds will be more beneficial to the investors considering the tax benefits.
Seconding his views, Vijay Kuppa, CEO, InCred Money believes that listed bonds are more beneficial than unlisted securities and debt funds. However, for investments of up to one year, all the instruments are at the same level, he added.
Joydeep Sen, Author, Columnist and Corporate trainer points out that while listed bonds have more tax benefits than debt funds, there is no capital gain element in listed bonds. He said, “In listed bonds, returns comes from coupon rate and not capital gains. Even though listed bonds are slightly more lucrative at this time but when it comes to liquidity, debt mutual funds can give compounding benefits with professional fund management.”
MFDs can distribute listed bonds and earn commission of nearly 1% on A to BBB rated securities and 50 bps on AAA bonds. The minimum invest size is Rs.10,000 and Rs.1 lakh in public sector listed bonds and private sector listed bonds, respectively.
The annual yield in the listed bonds depends on credit rating and tenor. However, you can expect it in the range of 7% and 14%.
