Good Earning Potential:

There is a good form of earning potential for a subscriber who is under a 30 percent tax bracket and can earn up to 10.85 percent per annum in effective return over the tenure of a 7.5 percent bond as the interest is not taxable. But as for the subscribers, who are under a 20 percent tax bracket, the effective return is 9.45 percent and for 10 percent, the slab is at 8.35 percent.

In comparison, interest income on fixed deposits is taxed according to the individual's tax slab. The prevailing interest rate on a 5-10 year fixed deposit in SBI is around 8 per cent.

Interest Rate To Be Based On Government Security Of Equivalent Maturity:

Interest rate offered by these new issues is to be based on the yield on government security of equivalent maturity. At these prevailing interest rates, a retail investor can expect to earn nearly 7.25 to 7.75 percent per annum by subscribing to these bonds.

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