From July 1, RBI’s new Floating Rate Savings Bonds (FRS), 2020 will be open for public. These are 7-year floating interest rate saving bonds, currently offered at 7.15 per cent for first six months. The rate of interest will be reset every six months, i.e. the first reset will be announced on January 01, 2021.
Well, government has launched this FRS after withdrawing RBI’s Fixed Bonds which yielded 7.75%. While the previous bonds offered the option to receive the interest cumulatively at maturity, the interest on new RBI bonds is payable every six months.
Here is a run through the new savings bond scheme. At 7.15 % returns, the scheme offers a lower return than 2018 bond. Here is a comparison between the two bonds.
| Parameter | Floating rate bond | Fixed rate bond |
| Issued on | July 1, 2020 | January 2018 |
| Expired on | – | May 28, 2020 |
| Tenure | 7 years | 7 years |
| Interest Rate |
| Fixed at 7.75% |
| Minimum Investment | Rs 1000 | Rs 1000 |
| Max Investment | No upper limit | No upper limit |
| Interest payout | After 6 months | Optional; choose between cumulative or non cumulative payout |
| Collateral | Not Applicable | Can be used as Loan Collateral |
| Tax implication | Taxable | Taxable |
| Senior Citizens |
|
|
Though the rate of return is lower than previous offering, the fact that the bond is backed by government of India makes it less risky than other investment options. In current times, you get peace of mind in regards to capital protection with these bonds. Besides, credit quality these are yielding higher than 5 year bank FDs and other fixed return schemes, except for senior citizen saving schemes & pension schemes. Currently Post Office Monthly scheme is offering 6.6% and National Saving Certificates are fetching 6.8%.
All resident Indians including individuals, Joint Holdings and Hindu Undivided Families (HUF) can invest. Non Resident Indians (NRIs) are not permitted to invest in these bonds.
There is no limit set. You can start investing from a minimum of Rs 1,000. The investment can be made in multiples of Rs 1,000.
Just like previous bonds, the new RBI bonds that are introduced on July 1 come with a lock-in period of 7 years from the date of issue. Premature redemption is allowed to senior citizens.
The liquidity flexibility for senior citizens is retained. The senior citizens in the age bracket of 60 to 70 years are allowed to opt for premature encashment after 6 years from the date of issue. While those who are between 70 to 80 years of age can withdraw funds after 5 years whereas super seniors above 80 years of age, have lock-in of 4 years.
The interest rate on RBI bonds is based on floating rate. Currently it is fixed at 7.15%, i.e. 35 bps above NSC. It will be payable bi annually on 1st January and 1st July every year. The interest rate will also reset every six months. Cumulative payout option is not offered this time.
Like previous bonds, interest received is taxable as per the tax slab applicable to the bond holder. TDS is also applicable on interest income.
The FRS bonds will be issued in electronic form. The Bond Ledger Account will be opened with the Receiving Office. You can invest in RBI bonds as per your convenience. The mode of transaction can be cash (up to Rs 20,000), demand draft, cheque or electronic mode. The bonds can be purchased from any of the PSBs or major banks such as SBI, IDBI Bank, Axis Bank, HDFC Bank and ICICI Bank.
The bonds are issued at floating rate of interest and thus will yield attractively during rising interest rate rally. Furthermore, RBI has decided to set the rate of interest as 35 bps more than NSC certificate. Currently NSC is yielding 6.8% and thus at 7.15% the bond is attractive.
However there are certain points to note. These are:
Also Read: Best Saving Option for Senior Citizens: Special FDs, PMVVY, or SCSS?
Reshma Rawat is a passionate writer with a decade of experience in writing for a variety of domains (finance, technology, lifestyle, e-commerce, real estate, etc.). Currently, she is working as Assistant Manager - Content @MyMoneyMantra and writes blogs & webpages on financial products (loans, credit cards, insurance, government financial policies, mutual funds, etc.).
Director- MyMoneyMantra FinTech| A senior retail and commercial banking professional, adept at handling Business Development, Sales Planning & Growth, Product Strategy, Marketing Operations and Client advisory services phygitally.
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