Investment in equity
How about investing in equity? A large number of investors, particularly the smaller ones, lost their lifetime savings by investing in the equity market in the last four years. The retail investor is totally averse to buying any equity or even making deposits in private or non-banking finance companies (NBFCs) after the recent stock market crash, which involved even the software, IT and pharma sectors and blue chip companies. Therefore, investment in equity is totally ruled out.

PF & PPF
The most preferred investment scheme for those in the highest tax slab is PF and PPF. While Provident Fund (PF) is confined to the salaried class, the Public Provident Fund (PPF) is open to all individuals. Accounts can be opened in any head post office or any branch of the State Bank of India or its subsidiaries or at specified branches of any nationalised bank. Both PF and PPF now give 11 per cent tax-free interest and also a tax rebate of up to Rs 12,000. Investment in PPF is, however, restricted to Rs 60,000 per year. Also, the duration of deposit is 15 years, extendable by another five years. Withdrawal of a specified amount through loans is permissible on completion of the third year. After the seventh year, the depositor can withdraw an amount not exceeding 50 per cent of the balance at the end of the fourth preceding year, or the year immediately preceding the year of withdrawal, whichever is lower, less the amount of loans, if any. It is unfortunate that the demand of small investors for raising theexisting ceiling of Rs 60,000 on PPF has not been accepted.

RBI bonds
The 9 per cent interest, tax-free RBI bonds, interest payable half-yearly or on maturity, without any upper limit, with wealth tax exemption and issued in the form of government promissory notes (transferable by endorsement on delivery) or stock options (transferable in the books of the RBI) is the best investment option for those in the highest tax slab.

US-64
US-64, the flagship scheme launched by UTI in 1964, offers a perfect blend of various benefits such as attractive return, capital appreciation and easy liquidity, together with additional benefits by way of special offers, as also tax benefits. The scheme is open to resident as well as non-resident investors. Investment can be made by a resident adult individual singly or along with another adult on joint or either/or survivor basis. The face value of each unit is Rs 10. The minimum investment is Rs 2,000. There is no maximum limit. However, the actual sale and repurchase of units are effected at the sale and repurchase prices fixed by UTI every month. The investor gets the full year's income in the month of July every year on the face value of the units he holds, irrespective of the month of purchase.

Units can be bought throughout the year (except during the period of book closure). Over and above the income, which came down to 13 per cent in 1999 from 20 per cent for the three preceding years, unit holders have also been rewarded with additional benefits from time to time, such as a high growth scheme, preferential offer of additional units, rights offer, etc., at discounted prices and bonus. The annual tax-free income on US-64 works out to around 10 per cent on the assumed price of Rs 13 per unit and dividend at 13 per cent.

A dematerialisation facility is available by which units can be held in electronic form with a depository, National Securities Depository Ltd (NSDL). Income distribution warrants (IDWs) are sent to the unit holder's address or to the unit holder's bank or direct credit to the unit holder's bank account through ECS. Income can be reinvested in further units under the Reinvestment Plan, 1966. The scheme provides instant liquidity any time throughout the year except during the period of book closure. Units under the scheme are transferable and pledgeable. Nomination facility is available for individuals applying on their own behalf-i.e. singly or jointly. Income received in the hands of all categories of investors is totally tax-free. Value of investment in units is exempt from wealth tax. The investor is required to pay tax at the rate of 20 per cent on long-term capital gains after taking the benefit of the cost inflation index.

ULIP
The Unit Linked Insurance Plan, 1971, offers triple benefits, tax rebate, insurance cover equal to the target amount, accident cover of Rs 30,000 and high returns. The package of benefits includes tax rebate on every contribution, life insurance, attractive returns and maturity bonus.Under ULIP, one has a choice of either a 10 year or 15 year plan. The minimum target amount of investment is Rs 6,000 and maximum Rs 75,000. The target amount can be in multiples of Rs 1,000 or Rs 1,500 for the 10- or 15-year period, respectively. For a 10-year plan, the upper age limit is 50 years and six months. If death takes place before the completion of the plan, the legal heirs or the second named person will be entitled to receive the cash equivalent of the units in the deceased's credit, the amount of life insurance cover, and accident insurance cover, if death has occurred due to accident.

The subscriber gets a tax rebate of 20 per cent of the amount contributed to ULIP, subject to a maximum contribution of Rs 60,000 per year. Income received under ULIP is totally free from tax. The value of investments in units under this plan is fully exempt from wealth tax. ULIP declared an income of 16.5 per cent from 1993 to 1998 and 17.48 per cent in 1988-99 on its capital. On completion of the full plan period, the subscriber receives a maturity bonus of 5-7.5 per cent on the target amount depending on whether he has opted for a 10- or 15-year plan. However, ULIP is not applicable to people of an older age group.

Deposit in banks, post offices
For those who do not have taxable income, fixed deposits in banks or post offices are attractive options. The maximum interest on deposits in public sector banks for more than three years is now around 10 per cent. Though the interest rate on popular post office saving schemes such as time and recurring deposits and deposit schemes for retired government and public sector employees, National Savings Certificates (NSC), Indira Vikas Patras and Kisan Vikas Patras has now been reduced, the schemes are still attractive for those who do not have taxable income.

(The author is a media consultant and freelance writer.)