Deep Discount Bond

Deep Discount Bond A long – term (could even be 25 years) debt instruments selling at a high discount of 20% or considerably more of its face value, depending on its period of maturity. When current interest rates drop, such a bond may yield better returns. These bonds are usually encashable earlier at a discounted interest. An example of a deep discount bond is; deposit Rs, 2500 today, and collect Rs. 100,000 after 25 years. Ascertain if on maturity these bonds will attract Capital Gains Tax, which is more advantageous than income tax at current rates.

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