The final lap

Over 1.2 million unit holders of US64 Taxfree bonds will receive their maturity payments in June. The bonds were given in lieu of the erstwhile Unit Scheme 64 in June 2003. More than Rs 7,000 crore of US64 bonds are outstanding in the market, which will cease to exist from June 1, 2008. The bonds carry an interest rate of 6.5 per cent payable half-yearly, which was attractive when the bonds were first issued as the interest rates were low then.

Bond holders are set to have an investment surplus in the coming months. But in these times, it’s best that the receipts are reinvested in the market. To earn a similar post-tax return, investors need to make, at least, 9.3 per cent pre-tax on fixed income instruments such as a fixed deposit. Banks are offering a pre-tax 8-8.5 per cent on one-year deposits. On the other hand, a few fixed maturity plans are offering over 7 per cent post-tax indicative yields with a two-year lock-in, which could be an alternative for investors still looking at fixed income investment.

On the other hand, investors looking to boost their incomes a bit can enter equity funds. UTI Mutual Fund has sent out flyers to US64 bond holders to invest in its schemes. Says Debashish Mohanty, Head of Marketing, UTI Mutual Fund: “We have sent out letters to the US64 bond investors to invest in some of our equity funds.”

Overall, equity funds delivered strong returns riding the strong bull market. But due to negative macroeconomic factors like inflation and high global oil prices, the market has become volatile. For now, it’s better to stagger equity fund investments over the coming months to cut down risk.

—Clifford Alvares