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Trading debut for US-64 bonds

New Delhi, June 15 (PTI): The tax-free US-64 bonds are expected to witness a bull run from banks, insurers and provident funds when its trading starts on bourses from tomorrow.

“Banks, insurance companies, provident and pension funds will lap it up considering the relatively high effective return and 5-year maturity period,” banking sources said today.

At present, there is no sovereign guaranteed paper offering so much return with average yield on government securities ranging below 6 per cent.

Banks, which are flushed with cash and are eyeing attractive options in parking their funds, are looking forward to buy US-64 bonds even with a slight premium.

Similar is the case with insurers who are looking towards high return debt papers with at least 5-year maturity period.

Following the decision to stop further investment in special deposit scheme, provident funds are also looking at instruments offering relatively high return in order to sustain near 9 per cent return to their members.

High-net worth individuals are also eyeing at the bonds offering an effective return of over 10 per cent.

Mutual funds and dealers in government securities does not seem to be too much enthused about the bonds, which were offered in exchange of US-64 units in May.

“We are more interested in liquid stocks. We do not hold on to a debt paper like banks and insurance companies,” PNB Gilts managing director I. D. Singh said.

Debt-oriented mutual funds are also looking towards liquid government and corporate debt papers instead of the illiquid US-64 bonds.

“We do not have much interest in US-64 bonds,” an official of Standard Chartered Mutual Fund said. The fund recently launched a medium term plan which would invest 75-90 per cent in corporate debt papers.

Contrary to fears of a low return, the US-64 bonds offer 6.75 per cent tax-free return and has come as a boon to small investors.

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