How to Invest in NABARD Bonds?

Many readers have asked me that, I Want to Invest in NABARD Bonds. How to Invest in NABARD Bonds? What is the exact procedure of Investing in NABARD Bonds?

If you haven't made your tax-saving investments yet, keep in mind that the tax-free rural bonds proposed to be issued by the National Bank for Agriculture and Rural Development (Nabard) in the last Budget have been made available starting late January this year.

The bonds would be issued at Rs 1,000 a piece and one has to buy a minimum of five bonds, amounting to Rs 5,000.

The investment would be locked in for five years and can be claimed for deduction under section 80 C up to Rs 1 lakh.

Interest would be paid out at 8.25 per cent per annum, though senior citizens would get 8.75 per cent.

However, the income earned as interest would not be tax-free. It will be added to the income of the investor and taxed at the relevant tax bracket.

One has the option of withdrawing the interest on the bonds annually, or to take the cumulative option under which the interest is reinvested in the bonds and paid when they mature. If an investor wants to withdraw the interest earned annually, he can decide whether to receive the interest in warrants or via ECS.

Annual interest payments will be made on July 31 each year. So, if you were allotted the bonds on March 31, 2008, the first interest would be paid out on July 31, 2008, and subsequent payouts on July 31 each year thereafter.

The bonds can either be issued in paper format or in dematerialised form. Predictably, someone choosing the demat option would necessarily have to have a demat account. Only, having the certificate in demat form doesn't quite help, as the bonds cannot be sold before maturity in any market.

Besides, the bonds would be allotted only on the last day of each month. So, if you apply for the Nabard Rural Bonds on 15th of a month, Nabard will pay you interest at the rate of 5 per cent per annum for the period intervening the date of application and allotment of units.

Also, one has a choice of fixed-income products with similar lock-ins that offer better returns.