5) Tax free bonds haveemerged as highly popular investmentoption among investorsdue to the taxation benefitthat they of fer. Thesebonds, generally issued by governmentbacked entities, areexempt from taxation on theinterest income received fromsuch instruments under theIncome Tax Act, 1961. Tax-exemptbonds usually pay lowercoupons than corporatebonds as they enjoy a bettercredit rating and the interestreceived is tax-free.