1. Unit Linked Insurance Plans

Unit Linked Insurance Plans, more popularly known as ULIPs, offer a combination of insurance and returns. You have an option of investing the money in debt mutual funds or equity mutual funds as the case maybe.

Returns tend to be much lower, due to the fact that initially a lot of money goes into administration and policy charges. This is one drawback of the ULIP.

However, the income earned from the ULIP is tax free. They also tend to have a lock-in period of 5 years and one can withdraw the money after this lock-in period. Returns can be much lower, but, the advantage is that you get an insurance. So, if some thing were to happen to the policy holder, insurance around 10 times the premium paid is available to the nominee.

2. Public Provident Fund

The interest earned on the PPF is exempt from tax. Apart from this, you get tax benefit under Sec80C. The current interest rate under this instrument is around 7.9 per cent, which is not bad at all.

The one drawback of the scheme is that you can invest a very limited sum of Rs 1,50,000 each year. Apart from this the scheme is for 15-years and there is a lock-in period of 7 years. Also, there are various conditions on withdrawal. This is a rather safe scheme, which is good for investors looking to build a decent corpus closer to their retirement.

3. IRFC Tax Free Bonds

These Bonds are listed on the stock exchanges and offer a tax free income to investors. They are issued by government sector enterprise and are very safe. The IRFC N1 series offers an interest rate of 8.0 per cent and is available at a price of Rs 1,130. Interest is paid on Oct each year.

It's important to remember that tax free bonds must be bought at an attractive rate, so that your yields on the bonds remain high. Sometimes, liquidity in the bonds are not very great, hence you can trade only n limited quantity.

4. Voluntary Provident Fund

The Voluntary Provident Fund is another way to save tax. The best thing about the VPF is that its interest beats that of the PPF, by a good margin. The interest earned is also tax free in the hands of the investors.

In 2017-18, the VPF earned an interest rate of 8.55% while the PPF rate varied between 7.6% and 7.9%. Investors can definitely look at this option. However, it is mean only for salaried individuals.

5. HUDCO Tax Free Bonds

HUDCO Tax Free Bonds are another good option that can be purchased from either the BSE or the NSE. There are various tax free bonds of HUDCO including the N1, N2, N3 series etc. Each of these offer varying interest rates to investors. As mentioned earlier, the liquidity in some cases can be poor and investors may not get to buy in heavy volumes.

6. Some other tax free bonds

There are many other tax free bonds like REC etc., which investors can also consider for investment purposes. They have an expiry of 10 to 15 years, and can be bought and sold on the BSE and NSE.

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