ICICI's latest bond issue comes at time when interest rates are lying low and public interest in fixed-income investments is waning. However, the timing is right to the extent that there is no other competing issue in the market and investor sentiments in the equity market is at its lowest.

The question, therefore, is how attractive is ICICI's latest offering compared with some of the other fixed-income investment opportunities in the market today. Also, is it prudent to invest now or wait until interest rates firm up in the fourth-quarter of the current financial year? Can the ICICI offer be given a miss?

The Regular Income Bond (RIB), the most-sought after option in the previous ICICI issue, is not attractive enough with a monthly interest payment of 12 per cent. Besides, the minimum investible amount has been kept very high at Rs 30,000 compared with Rs 10,000 earlier. While the interest rate on the RIB is marginally higher than that of UTI's current Monthly Income Plan, which offers 11.75 per cent per annum, it is slightly less than LIC's Dhanvarsha 11 which is likely to be fixed between 12.2-12.5 per cent.

However, the best option for anyone wanting a monthly interest payment is the Post Office Monthly Income Scheme. The 13 per cent payable monthly and 10 per cent maturity bonus after six years give a very attractive yield of 15.1 per cent given the low interest rate regime prevailing now. Although the maturity period is slightly longer than say UTI or ICICI's RIB, there is an early redemption after one year albeit at 5 per cent discount (there is no discount after four years).

Yet another advantage of the Post Office scheme is that the upper limit of your investment is as high as Rs 2.04 lakh in a single account and Rs 4.08 lakh in a joint account. Besides, if you open a Post Office Savings Account, you will be saved of the trouble of trudging to the post office to collect the monthly interest payment -- the accrued interest will simply be transferred to your account. This together with Section 80L benefit (also available on the RIBs) and a lower minimum investible amount of Rs 6,000, gives the Post Office Monthly Income Scheme a hands down victory over the ICICI bonds.

Coming to the Money Multiplier Bond (akin to a Deep Discount Bond), the best option is the one where your money grows four times in 11 years, giving a yield-to-maturity of 13.42 per cent. In fact, ICICI is marketing this option as its USP. However, if you are actually looking for this kind of an investment opportunity, it would make more sense to pick up a deep discount bond with a better yield from the secondary debt market. However, you will have to cough out a little more as most of these instruments have accrued interest. But remember, the maturity amount will be treated as interest income and not capital gains. Your dream of becoming a millionaire may remain a dream as the tax authorities take away a substantial chunk of your `million'.

Of the three types of bonds on offer from ICICI's stable, the tax-saving bond is undoubtedly the best bet (see table). Option I, which gives investors a 20 per cent tax rebate on their investment, attracts with a yield-to-maturity of 18.46 per cent for those in the top tax-bracket. The tenure is for five years, but investors can get out after three years. Besides, ICICI has agreed to provide full allotment for these bonds in consultation with Sebi, which means the chances of a refund in case of oversubscription is low.

However, let the name of the bond not deceive you. The amount you receive on maturity will be taxed, so better be prepared for that. In that sense, the Public Provident Fund is a better option -- the interest rate is same, but the maturity amount is exempt from tax. The only hitch is the tenure, which is for 15 years, but there is an early redemption after seven years. You could also consider the National Savings Scheme; but here the interest is lower at 11 per cent.

UTI's Unit-Linked Insurance Plan, which combines saving in units with the advantage of life and accident insurance cover, is undoubtedly the best option among the tax-saving schemes on offer at present. The minimum investment is Rs 10,000 on which there is an assured dividend which is re-invested. For the past four years, the dividend has been around 16.5 per cent! To top it, there is a maturity bonus of 5 per cent on the 10-year scheme and 7.5 per cent on the 15 year scheme. There is also an early redemption after five years albeit with a 1 per cent discount. The accident insurance cover is up to Rs 30,000 irrespective of the target amount. The life insurance cover will be the difference of the target amount and the total contribution. With the difference between the total contribution and the target amount will be treated as capital gain, the tax outflow will be lower than that in the case of the ICICI Tax Saving Bond. Of, course, you can also reap the 20 per cent tax rebate on the investible amount every year.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.