This article looks at a few investment options from the return, risk and tax angles.

Post Office Monthly Income Scheme (POMIS): The minimum and maximum amounts that an individual can invest in POMIS is Rs 6,000 and Rs 3,00,000 respectively. If the investment is made in joint names a maximum of Rs 6,00,000 can be invested. Investment in POMIS yields a return of 8 per cent per annum which is payable monthly. In addition, a 10 per cent bonus is also payable on maturity. Thus, Rs 600 will be paid as bonus after six years for a deposit of Rs 6,000. This would mean that the effective rate of return under this scheme would be 9.67 per cent per annum. The investment is highly secure and also provides investors monthly income. An investor can nominate anybody to receive the deposit on his/her demise. The amount deposited cannot be withdrawn for three years from the date of opening of the account. If the account is closed and the amount is withdrawn prematurely (after one year from the date of opening of account) 5 per cent of the deposit will be deducted and only the balance will be paid. This scheme will best suit those who have the need for regular monthly income.

Tax considerations: The interest earned on POMIS qualifies for deduction under Section 80L of the I-T Act, 1961. The maximum amount deductible the section for the assessment year (AY) 2003-2004 is Rs 12,000. No tax will be deducted at source on the interest out of this account.

National Savings Scheme (NSS): The deposits in NSS can be made in all head post offices and select sub-post offices. The investor is not allowed to open a joint account. A minimum investment of Rs 100 can be made and deposits in multiples of Rs100 without any ceiling is permitted. The investor cannot withdraw the amount invested during the first four years of investment. Interest at the rate of 7.5 per cent per annum is credited annually on April 1. Since the amount invested qualifies for a rebate under Section 88, the actual outflow in the hands of the investor would be only 80 / 85 per cent and the effective return will thus be 9.38 / 8.82 per cent per annum.

Tax considerations: Amount deposited in NSS qualifies for Section 88 rebate, which is calculated at the rate of 20 / 15 per cent on the sum invested subject to a maximum sum of Rs 14,000 / Rs 10,500 and the rebate so computed is deductible from the tax liability of the investor. Interest credited annually qualifies for deduction under Section 80L.

Public Provident Fund Scheme (PPF): A PPF account can be opened in any post office, any branch of State Bank of India or its subsidiaries or in specified nationalised banks. The account can be opened in the name of a minor. Non-Resident Indians are also allowed to open this account. The minimum investment required to be made to open and keep the account live is Rs 500 a year. The investor cannot invest more than Rs 70,000 per annum in this account. An investor is allowed to make up to 12 deposits in one year. The PPF account matures after a period of 15 years and the investor can opt for continuing the account for further block periods of five years.

No withdrawal can be made till the end of the seventh financial year and only one withdrawal per year is permissible thereafter. The amount of withdrawal cannot exceed 50 per cent of balance at the end of the fourth financial year immediately preceding the year of withdrawal or at the end of the preceding year, whichever is lower. The investor can take a loan of up to 25 per cent of the amount to the credit at the end of the first financial year, which can be applied for after two years but before five years from the end of the year in which the initial deposit is made. Interest at the rate of 8 per cent compounded annually is credited to the account. Since the amount invested qualifies for a 20 / 15 per cent rebate under Section 88, the actual outflow in the hands of the investor could only be 80 / 85 per cent and the effective return will thus be 10 / 9.41 per cent per annum. The PPF account will best suit an investor who does not have an immediate requirement for funds or for a person who is not in need of regular income.

Tax considerations: Interest credited annually to this account is fully exempt from tax. The investor is not liable to pay tax on the matured amount at the time of withdrawal. The amount deposited by the investor in a year qualifies for rebate under Section 88.

National Savings Certificate (VIII Issue) (NSC): NSCs can be purchased from post offices and are available in denominations of Rs100, Rs 500, Rs1,000, Rs 5,000 and Rs 10,000. A minimum deposit of Rs 100 should be made and there is no ceiling on the maximum amount that can be invested. The term of a NSC deposit is six years and no premature withdrawal is permitted. Investments can be made in the name of a minor. Investors can raise loans by pledging the certificate as security. Interest at the rate of 8 per cent per annum is compounded half-yearly. Since the amount invested qualifies for the 20 per cent rebate under Section 88, the actual outflow in the hands of the investor would only be 80 / 85 per cent and the effective return will thus be 10 / 9.41 per cent per annum

Tax considerations: The amount deposited (up to Rs 70,000) qualifies for Section 88 rebate. Interest accruing annually on this account is deemed to be reinvested and thus qualifies for rebate (except in the last year). Deduction under Section 80L is permissible on the interest that is credited.

The investor will be well advised to take into account the several factors that may govern an investment option, including his/her personal commitments. In any case, it is suggested that investors be not lured by high-return investments at the cost of security of the amount invested. One should remember that, generally, higher the return, greater is the risk.

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