Are REC, NHAI bonds a good investment?

The Finance Minister has maintained a Rs 50 lakh limit on saving capital gains tax by investing in specified bonds. But the low rates of interest these bonds are offering this year make them unattractive reports CNBC-TV18.

You can invest your capital gains from any asset including property in bonds issued by REC or NHAI and not pay tax. The Finance Minister even maintained a Rs 50 lakh per person limit on these bonds in this year's Budget. These bonds offer a mere 5.25 % interest rate that is taxable on maturity.

"This offers a capital gains tax advantage, so interest rates are kept lower. In fact for this issue it is 5.25% and fully taxable, which comes to hardly 3% and that does not even cover inflation," says Sandeep Shanbhag, tax and investment consultant.

If you choose to pay 20% tax on your capital gains of Rs 10 lakh and invest the balance in equity or equity based mutual funds, you stand to earn 10% higher - that too tax free. Assuming a return of 15%, the net amount at the end of three years comes to over Rs 12 lakh.

While investing in capital gains bonds may give you the satisfaction of saving tax, there may be better ways to enhance your returns even though it may mean taking a little risk.