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NEW DELHI, Aug. 8

THE Government has decided not to fix an annual investment limit on the new seven per cent tax-free bonds announced by the Finance Minister, Mr Jaswant Singh, in a bid to restore the feel good factor and bolster savings.

These bonds will be open for subscription to individuals and Hindu Undivided Families (HUFs) till March 2003. The tax-free bonds with a lock in period of six years will be non-tradable, the Finance Secretary, Dr S. Narayan, said here.

The bonds can, however, be bequeathed or gifted to a close relative as defined under the law. Corporates will not be able to subscribe to the new bond issue, which is in addition to the existing GOI Relief Bonds carrying a coupon rate of eight per cent.

Investors will be in a position to subscribe to the new tax-free bonds even after the current fiscal, as the Government has decided to re-issue the bonds every year. The only caveat is that the coupon rate on reissue will be indexed to the average annual yields of Government securities of equivalent maturities in the secondary market.

The Reserve Bank of India will determine both the interest rate and the tenor of the bond on an annual basis. The interest rate will therefore be automatically adjusted to the long-term interest yields.

In fact, the seven per cent coupon rate fixed by the Government for the new tax-free bonds is based on the average secondary market yield of 6.92 per cent on a six year GOI security.

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