Nine-point guide to RBI's floating bonds
RBI's floating rate bonds are offered by the government of India and bear a 7.15% interest rate.
In this age of low-interest rates, RBI’s floating rate savings bonds are an instrument that gives one relatively high and secure returns. These bonds are offered by the government of India and bear a 7.15% interest rate. They are on offer since July 2020. If you are a low-risk investor and want a secure return, this bond is for you.
Here are nine main points to understand how your investment would work.
Interest rate
The current interest rate of the bonds is 7.15%, which is higher than PPF and that of any FD between 5-10-year tenure in any bank. Generally, the bonds carry a floating rate of interest that is 0.35 percentage point or 35 basis points higher than the interest rate of National Savings Certificates (NSC). The interest rate on the NSC is 6.8%.
The government on a quarterly basis might change the interest rate. If the interest rate of NSC is reduced, the interest rate on these bonds would come down automatically.
Lock-in period
The bonds are repayable on the expiration of 7 years from the date of issue. Premature redemption shall be allowed for specified categories of senior citizens.
People between 60 and 70 years can withdraw after 6 years; between 70 and 80 years, after 5 years and those over 80 can withdraw the deposit after 4 years enjoying the same rate of interest.
Where to buy
Applications for the bonds in the form of a Bond Ledger Account will be received in the designated branches of SBI and any other PSU banks, IDBI Bank, Axis Bank, HDFC Bank, and ICICI Bank.
The bonds will be issued only in electronic form and held at the credit of the holder in an account called Bond Ledger Account, opened with the receiving office.
Limit of investment
The minimum invested amount in RBI floating rate bonds is Rs 1,000 and multiple of Rs 1,000 thereafter. There is no maximum limit.
But if you invest in cash then there is a cap of Rs 20,000. One can put in the money through drafts, cheques, or any other electronic mode acceptable to the receiving office without any limit.
Floating interest rate
The bonds carry a floating rate of interest that might be reset every six months with the first on January and the next on July every year.
The interest from the bonds is paid out periodically to the investors and there is no option for cumulative interest.
Payouts
The payouts from the bonds are made semi-annually on January 1 and July 1 every year to the holder’s savings account till the sixth year. At the end of the tenure, i.e. at the end of the seventh year the whole amount along with the last year’s interest and bonus, if any, will be deposited into the same savings account.
Tax computation
Interest on the bonds will be taxable under the Income Tax Act, 1961 as applicable according to the relevant tax status of the holder. But the bonds are exempt from Wealth Tax Act, 1957.
Who can buy
Individuals including joint holders and Hindu Undivided Families (HUF) are eligible to invest in these bonds. NRIs cannot invest.
Limitations
The bonds are not eligible for trading in the secondary market and cannot be used as collateral for loans from banks, financial institutions, NBFCs, etc.
The bonds in the form of BLA shall not be transferable except transfer to a nominee or a legal heir in case of death of the holder.