Investors in bonds may head for the post office

Now that the government savings bonds, that were carrying 6.5 per cent interest (tax free), are being withdrawn, investors will again flock ...

Now that the government savings bonds, that were carrying 6.5 per cent interest (tax free), are being withdrawn, investors will again flock the post offices and bank counters to park their monies in a big way. The eight per cent government savings bonds will, however, continue to exist.

There have been murmurs that the 6.50 per cent savings bonds, which are popularly known as RBI Relief Bonds for the sheer reason that RBI markets them, were being misused. Said JM Mutual Fund chief executive officer Krishnamurthy Vijayan: “This measure was long overdue. Retail investors who were parking their money in tax free bonds may go to bank fixed deposits.”

It has been gathered that the 6.50 per cent bond was the favourite among the corporate heavyweights and high net-worth individuals (HNIs).

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One such HNI, Janak Mathuradas, seemed unhappy over this development. “The government should have a rethink on the issue. I hold relief bonds of both types: the 6.5 per cent and also the eight per cent. There is no alternative for individuals who are not senior citizens. I have not applied my mind on the possible alternatives, but post office schemes need to be check out though they are not tax-free”, Mathuradas said.

The mutual fund industry is now gearing up to grab this opportunity with both hands. Some, like Standard Chartered MF managing director Naval Bir Kumar, said: “The demand from the retail side for the RBI Relief Bonds will be released and will be shifted towards debt funds. Currently, the debt fund competes well with any existing taxable bonds and for the retail investors seeking safety the next best alternative is debt funds.”

Said IL&FS Investmart chief operating officer Sandeep Presswala: “Following the withdrawal of the 6.5 per cent RBI Relief bonds, I don’t think the money will move to equity markets. Partly, the money might move to post office saving, liquid funds, monthly income plans (MIPs) and on a small way in some of the forthcoming initial public offerings (IPOs)”

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