In the current scenario of low interest rates and lower tax benefits, investors are on a hunt for some good fixed income bargains.

As usual investors are on the look out for an instrument that will offer them decent returns with adequate safety with tax benefits being the icing on the cake. Investors with some surplus money willing to lock their funds for a while still have some good opportunities available in the market. In this report, we have highlighted these attractive avenues on offer.

What's on your plate?

Instruments	Return (p.a.)	Tenure (Yrs)	Tax benefits
Tata Power Deposit	10.00%	3	Nil
Kotak Mahindra Deposit	9.75%	3	Nil
Krishna Bhagya Jala Nigam NCD	11.70%	7	Nil
Fixed Maturity Plans	Indicative	3 mth-12 mth	Indexation (over 1 yr)
Single Premium Bond	Floating	10	10 (10D) / Sec 88
National Savings Certificate	9.00%	6	Sec 80L / 88
8% Relief Bonds	8.00%	5	Tax free

Company deposits
Investment in company deposits is relatively safe depending of course on the rating and credibility of the issuing company. If an investor is investing in a company deposit his first priority should be settling for a company with excellent credentials or in other words with AAA credit rating. The rate of return offered by the company must take a backseat as nothing is more important the preservation of capital.

In the above table we have mentioned two company deposits Tata Power and Kotak Mahindra Finance, which are very attractive as both, are credible companies and also offer decent returns on their deposits. Tata Power gives a fixed return of 10% p.a. for 3 years cumulative option and Kotak Mahindra assures a return of 9.75% p.a. for the same deposit. Kotak Mahindra also gives a free accidental death benefit on its deposit i.e. 5 times the deposit amount. However, on the tax front company deposits don’t offer any tax benefits. The interest income earned from these deposits is taxed depending on the tax bracket of the investor.

Krishna Bhagya Jala Nigam Ltd. (NCD)

Minimum Investment	1 Bond (Rs 5,000)
Interest Payment	Annually
Interest Rate	11.7% p.a.
Tenure	7 years
Put/Call option	After 5 years

This is a public issue of a secured redeemable non-convertible bonds in the nature of debenture. This bond is open for subscription till April 22, 2002. It is an attractive investment as it gives regular (annual) income. Also the return on this bond is high (11.7% p.a.) which net of tax is still attractive considering other products in the market. Moreover there is adequate safety as it is rated by both CRISIL and ICRA and is also backed by the government of Karnataka.

These state government bonds come out in the market quite regularly. However, they are open for a specific period and for this it is very important that the investor is abreast of the personal finance market. Subscribe to our fortnightly newsletter to keep yourself updated on what is happening in the personal finance industry.

Fixed Maturity Plans (FMPs)
These are offered by various mutual funds and have a specific lock-in period. If you would like to know more about FMPs, click here. FMPs are open for a short specified period and are close-ended funds, so they specify the period of the plan to the investors and also give the indicative return. FMPs are attractive as they also give indexation benefit, which helps the investor save on tax if he has been with the fund for over 1 year.

Currently Prudential ICICI is coming out with an FMP, which is starting on April 8, 2002 and is open till April 15, 2002. This is a 1-year FMP and the indicative yield net of tax is 7.25% to the investor. Considering the net of tax yield of 7.25% for a period of 1 year is very attractive as compared to other comparable products.

Single Premium Bond
The single premium bond offered by various insurers is one of the best investment instruments for an investor with a long-term investment horizon. Though the return on this product is not necessarily assured, the investor can expect a high return as this product has an investment profile like the balanced fund with some exposure to equities. However, this product is very safe as though with a balanced fund approach the principal amount is assured. Also, being an insurance-cum-investment product the returns on maturity are totally tax-free.

Government backed instruments
National Savings Certificate (NSC) and Relief Bonds have seen a rate cut of 0.5% in the Union Budget 2002-2003. However, NSC is still attractive at 9% p.a. for 6 years also with tax benefits u/s 80L (interest income exempt upto Rs 9,000) and u/s 88 as per the revised rule. Relief bonds too are attractive at 8% p.a. tax-free returns for 5 years. However, now the maximum amount for investment is Rs 200,000 p.a. Both these instruments are of the highest safety as both are backed by the government of India.

So the investor need not be subdued by the budget because there are a whole lot of options out there that even at current taxation levels fulfill the need for a steady income stream with optimum post-tax returns.

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