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NEW DELHI, March 13

THE option to holders of US-64 certificates to convert their holdings into tax-free bonds in lieu of the units would be on offer from March 15. However, the bonds will be issued in May.

The bonds would bear an interest rate of 6.75 per cent and would be guaranteed by the Government.

Ministry of Finance officials said that the effective yield for the bonds would work out to over 10 per cent to both corporate and individuals within the marginal tax rate of 30 per cent or above. Thus, while the effective yield for the corporates would work out to 10.52 per cent, that for individuals in the 30 per cent tax category would be 10.07 per cent.

"We feel that the return on the bonds would be quite attractive for investors. In fact if the declining trend in interest rates continue the bonds are likely to attract a healthy premium," officials said.

They said that large institutional holders of US-64 certificates would specially find the option to switch over to the bond very attractive.

The bonds, which would be redeemed after five year, would have the added facility of being freely tradable in the open market.

Officials said the Specified Undertakings of UTI (UTISU), which houses US-64 after the split of the erstwhile UTI, would give time till April 4, 2003, for investors to indicate their preference on whether they would be willing to switch over to the bonds or to redeem their unit at the administered price. "Bonds would be issued to those who exercise the option as well as to those who do not exercise the express option for cash payment," officials said.

As per the scheme earlier announced by the Government, all unit holders as on June 30, 2001, who do not wish to take the bond option can offer up to 5000 units for repurchase at incremental assured repurchase prices up to May 31, 2003.

The price for March 2003 is Rs 11.80 thereafter going up by 10 paise each month to Rs 12 in May.

Certificate holders having more than 5,000 units will get Rs 10 or the prevalent net asset value (NAV), whichever is higher for units beyond 5000 on or after May 31, 2003.

However, officials clarified that the bond option would not be available to those who picked up US-64 units from the secondary market at the NAV after trading in the units was allowed.

"This is to ensure that nobody is allowed to take an undue advantage of the bonds scheme on offer," officials sai

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