Vishwanath Murli, a disgruntled government employee: "We don't buy toys and bicycles everyday. So I do not think that is a major break for anyone. Buying an AC is now top on my agenda. I might think of buying a PC for my house now. Of course we were missing the LTA earlier. That's good. Petrol costs will make a dent in my budget. Telephone bills, in fact all services, will levy an 8 per cent tax, so prices will go up. So who has benefited?"
Says Anuradha, a student: "My phone bills are going to be higher, thanks to the service tax. Many of my friends will pay more for chats at the Cyber cafes. My petrol costs will go up. That doesn't make me happy."
Pankaj Mehra, a senior manager with a private company is unconcerned of the micro effects of the budget: "In the higher income slab, I have to now give away more to the government. What do I gain? But now, a Lancer is something I could take a look at."
With the addition of a 10 % surcharge for people earning more than Rs 8.5 lakh annually, the Budget has effectively increased the maximum marginal tax rate to 33%. On the other hand, investors earning less than Rs 8.5 lakh per annum have been freed from paying any surcharge, thus effectively reducing the maximum marginal tax rate to 30%.

The Union Budget has levied a surcharge of 10 percent on people earning more than Rs 8.5 lakh.

Says Anand Kapoor, a retired public sector manager: "The finance minister has taken away my monthly income by reducing the rates on savings. But the new pension plan definitely sounds conclusive of better times ahead."
If you win some, you loose some, that seems to be the flavour of Union Budget 2003-04. For starters there are no changes in the income tax rates. However a surcharge of 10 percent has been levied on people earning more than Rs 8.5 lakh. A new pension policy has been announced for the senior citizens, tax procedures have been simplified, dividends from mutual fund is tax-free, long term capital gains has been abolished. Also small savings rate has been cut, and service tax has been increased.
But in all the hoopla about the budget the common man's critical concern - what should I do? - remains unacknowledged and unanswered.
Jaswant Singh's maiden Budget has a number of positive features. But at the end of the day, the FMs offerings raise many basic questions than they answer.
With falling interest rates and earnings from investment in fixed income instruments declining narrows the choices for an investor.
Since the interest rate scenario and other economic fundamentals cannot be changed, it is important for investors to exploit every opportunity for generating a higher income on their savings. Every rupee needs to be judiciously invested so as to generate the highest possible return a defined risk profile. In this article, we propose to help you steer clear of all the confusion and move into a more efficient financial harmony by detailing the post-budget investment options available for you.

LIC PENSION SCHEME
"Kudos to the budget, we will have a low-cost social security system for the likes of us," says S. Khanna, a retired government employee, commenting on the new pension plan being floated by LIC - Varishta Pension Bima Yojana - the highlights of which is the guarantee of an assured return of 9 percent. Any person who is 55 years or more can invest a lump sum in this plan and get lifetime monthly pension, ranging from a minimum of Rs 250 to a maximum of Rs 2000. According to Khanna, this move is significant because India, unlike countries in the west, does not have a government security net for the aged that could guarantee a minimum post-retirement income.
Specifically, if you invest Rs 2.66 lakh (investment limit) in the Varishta Pension Bima Yojana, you will receive an assured monthly pension of Rs 2000. The LIC scheme will work well also for those seeking advantage of voluntary retirement schemes (VRS). Here a tax exemption up to a maximum of Rs 5 lakh has been announced, even when the amount is taken in installments. For senior citizens the income tax exemption ceiling has been raised from Rs 1.3 lakh to 1.53 lakh. Thus, most of the pension received would become tax-free.

LIC is launching Varishta Pension Bima Yojana for senior citizens. The highlights of this pension plan is the guarantee of an assured return of 9 percent.

SMALL SAVING SCHEMES
Returns from all small saving schemes - PPF, NSC, Post office MIPs and Kisan Vikas Patra - have been reduced by 1 percent (as expected by most, and feared by all risk-averse investors). But they still continue to yield a remunerative 8 percent plus per year post tax. The post-office monthly income scheme, with an investment limit of Rs 3 lakh, gives a monthly return on 8 percent annual basis plus a bonus of 10 percent at the end of the term. If security is your prime concern, continue to invest here. Also due to their inherent safety and additional tax benefits on many small saving instruments like NSC, PPF and Post office MIPs, you should invest in them. Besides, with RBI cutting savings bank deposit rates to 3.5 per cent from 4 percent and the GOI Relief bonds reset to 7% and 6% respectively, the small saving schemes are a better option.
COMPANY DEPOSITS
Company deposits, as deemed by some analysts, are no longer attractive to risk-averse investors as before. This is mainly due to the declining interest rate scenario. But Company deposits offer higher rate of interest as compared to banks. Also with the rates on the small savings being reduced by 1 percent, the gap between yields has been bridged. Further, as opposed to mutual funds, these instruments offer fixed returns. Also exemption limit under section 80L has been raised to Rs 15,000 (which includes up to Rs 12,000 from interest on Company Deposits) Thus, investors who want a safer haven for short-term deposits and are willing to settle for lower returns can invest in company deposits.

With dividends being made tax-free in the hands of the investors, Mutual fund schemes have become more attractive. Also the 12.5 % dividend distribution tax that debt funds have to pay is lower than the 30% an investor in the highest bracket had to pay.

INSURANCE SCHEMES
Insurance policies are always an intelligent decision while investing your hard-earned money. More than a tax-saving instrument or an interest earning investment, an insurance policy is a guarantee that your loved ones would not have any financial difficulties in case any unfortunate incident happens to you.
Insurance policies with high premium and low risk cover are similar to deposits and bonds. With a view to ensure that such insurance policies are treated at par with other investment schemes, it is proposed to substitute clause (10D) of the Section 10, so as to provide that the exemption available under the said clause shall not be allowed on any sum received under an insurance policy (maturity proceeds) in respect of which the premium paid in any of the years during the term of the policy, exceeds 20% of the capital sum assured. However, any sum received under such policy on the death of a person (death benefits) shall continue to be exempt.
This would affect the single premium policies, as the premium under such policy is usually high as it is paid in a single installment. If the premium paid towards such policy exceeds 20% of the sum assured limit, it will not enjoy Section 88 benefits.

RBI TAX-SAVING BOND
The new savings bond being launched by the government of India on March 24, 2003, could be a viable investment option. With a 6.5% rate of interest and a 3-year lock-in period, this is a good option for people who are looking for a safe instrument to park their funds. To invest in this bond, a minimum investment of Rs 1000 is required, and all investments are in multiples of Rs 1000. There is no upper limit. An investment of Rs 1000 would grow to Rs 1377 at the end of 5 years.

MUTUAL FUNDS
With dividends being made tax-free in the hands of the investors, Mutual fund schemes have become more attractive. Also the 12.5 % dividend distribution tax that debt funds have to pay is lower than the 30% an investor in the highest bracket had to pay. This leads to a reduction in the tax implications for those in the higher income tax brackets. Further, equity funds are exempt from this tax for next one year. This is a great incentive for the investor taking the mutual fund route to invest in the equity market. "Mutual funds had always seemed attractive to me, and with the latest incentives available it is definitely the first instrument where I would park my money," says Pankaj Mehra.

EQUITY
An equity revival is on the horizon. With removal of dividend tax from the hands of investors, investments in high dividend yield stocks have become more attractive. All listed equities that are acquired on or after March 1, 2003, and sold after a year has been exempted from long-term capital gains tax. These are clear incentives to invest in equities. Also the drop in small savings interest rates combined with the fact that stocks are undervalued today makes this a good time for investors to enter equities. But you must understand that equities are complex and risky instruments; they are not for everyone. If you can distinguish between a good stock and a bad one, if you have an appetite for the kind of risk equity investments entail, if you are not day dreaming of getting rich overnight, the tax incentives are definitely a boom.

DEBT FUNDS
The growth option with Systematic Withdrawal Plan (SWP) remains the most tax-efficient option. In the case of dividend option, though the dividend is tax-free in the hands of the investors, the dividend distribution tax of 12.5% will result in an effective tax burden in the hands of investors. Investors coming under 20% and 30 % category will be benefited, as the tax outgo in the case of dividends would be lower.

ASSET ALLOCATION
Now that you are aware of the various instruments available for investment, take a look at the asset allocation model to understand which combination of instruments would provide you with a holistic portfolio. As you may be aware an accurate financial plan also requires correct asset allocation. Determining the appropriate mix of assets in your portfolio is an important step in maximizing your returns and reducing your risk over the long term. The greater the variety of investments you have, the less likely you will be hurt by the poor performance of a single investment. Because investment markets move independently - and unpredictably - balanced investing increases the likelihood that at least some parts of your portfolio will likely be performing better than the others.
A study examining investment portfolios over many business cycles found that the asset mix - the combination of money market, income and growth investments - accounts for more than 90% of a portfolio's return over the longer term. In other words, the allocation of investments to each asset class is far more important than the selection or timing of individual investments. Your investment portfolio should match both where you are now and where you want to be in the future. The challenge is to find the proper mix of investments with just the right amount of money in a variety of investments. Asset allocation is a strategy investors can use to maximize long-term performance and reduce the volatility of returns. Based on a determination of your financial g matches this profile can be recommended.
The following asset allocation (see TABLE on page 16) has been prepared for three different earning groups - young professional, middle-aged married couple with kids and retired senior citizen. The investible corpus has been assumed in all the cases. The returns shown is ossible only under perfect conditions. The allocation does not take into consideration inflation or market upheavals.