The Telegraph
Since 1st March, 1999
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Trade US-64 for fresh bonds
A.If you hold less than 5000 US-64 units (mostly middle income families) you have one of three options:
  • Sell it back now to UTI at Rs 11.80 a unit.
  • Wait till May and sell back to UTI at Rs 12 a unit (best option if you are really a small holder with limited income, as US-64 transactions are also free of capital gains tax).
  • Trade it in for new bonds, which carry a tax- free income of 6.75% (If you are paying income tax at the top of the bracket i.e. at 30 per cent, then this is your chance for a good rate of return - because of the tax-free status the effective rate of return is 10%).
B. If you hold more than 5000 US-64 units (mostly high-income individuals, companies, institutions like schools, temples and universities).
  • Sell now in the secondary market at market price, which is about Rs 9.75 a unit.
  • Wait till May and sellback to UTI at Rs 10.(Both these transaction are free of capital gains tax and hence not bad deals).
  • Trade in for new bonds (You would probably be paying income tax at the top bracket and need a tax-free option - here is your chance to get one. If you pay 30% income tax, the 6.75% tax-free return translates into an effective return rate of 10%)

New Delhi, March 13: If you hold units in US-64, the popular mutual fund scheme which went through rough weather last year, and were wondering what to do with it — sell it, or junk it — the government has come up with another option: trade it.

The government today announced that it would give US-64 unit holders an option to trade in their units in May for a new five-year bond that would give them an assured, tax-free 6.75 per cent rate of return.

If the holder pays a 30 per cent income tax at the top of the bracket, this perhaps is the best option. A tax free 6.75 per cent translates into a little over 10 per cent effective rate of return on an investment for most categories which is guaranteed by the government and, hence, is rock solid.

The 10 per cent effective rate of return is better than most interest rate offerings on other instruments except the RBI Relief Bonds where the investment cap is Rs 2 lakh and the yet-to-be launched pension scheme where the investment limit is a little over Rs 22,000.

If you are a corporate, the effective yield will be 10.52 per cent. If you are an individual in the top tax bracket, the effective rate will be 10.07 per cent. But if you are on the lowest rung of the tax ladder — which means you pay just 10 per cent tax — the effective yield from the bond will be just 7.5 per cent. And if you don’t pay tax, the earnings will remain at 6.75 per cent.

The five-year bond will be one of the last assured return schemes to be guaranteed by the government, ensuring the safety of your investment.

Because it is tax-free and can still be traded on the secondary market, the holder could also find other high income tax-payee buyers who would love to put their money into an instrument that is safe, where the return is assured and tax free. “Yes, we feel it could trade at over Rs 10 in the market,” finance ministry officials said.

Finance secretary S Narayan said the bonds have been designed keeping in mind institutional investors like temples, schools and universities. But they could well be what you wanted. However, a word of caution. If you are truly a small investor with less than 500 units, then you might consider redeeming it. UTI will give you Rs 12 a unit when you do so on or after May 31. (If you hold more than 5,000 units you would get just Rs 10 a unit).

You could go in for the redemption if you are one of those, whose income is not in the top tax bracket, say a pensioner. A tax-free scheme may not be all that interesting to you. The rate of return would be. Redemption is not a bad idea as earnings are free of capital gains.

Or, you could go in for redemption if you have some investment scheme up your sleeve or need the money for some current expense — buying a flat or a marriage or something else.

But if you are in the top income bracket or are still confused about what to do with your US-64 units and feel you still need a safe house investment, then the five-year bond is not a bad deal. After all it is tax free and it is safe.

The UTI will call for an option for bonds from unit holders who will have to make up their minds between March 15 and April 4. Bonds will be issued to those who say yes to bonds as well as to anyone who does not specifically say he wants the cash back. So, better make up your mind fast.

New savings bond

The government today also launched a new five-year savings bond offering 6.5 per cent return from March 24 for domestic residents without an investment ceiling, which would be exempted from income and wealth tax. The bonds will be issued in demat form with a minimum Rs 1,000, an official announcement said.

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