Mr Bond is an investment which is safe and does provide liquidity, tax efficiency and safety. If one compares the tax impact of a fixed deposit versus a tax free bond, its only natural to opt for tax free bonds. Especially in the current interest rate environment, tax free bonds are being lapped up by institutional and retail investors.
However, if you look at a longer time frame i.e. 7- 10 years, equity investments have always beat returns generated by tax free bonds and fixed deposits. Its very important to have exposure to equity in one’s portfolio and the best way to beat inflation and ensure that one’s purchasing power is always ahead of inflation.
Tax free bonds are a good investment for the debt portion of one’s allocation but equity cannot be ignored and one must measure his/her risk apetite and make a plan to invest accordingly.