RBI Floating Rate Savings Bond

RBI Floating Rate Saving Bond

Review

What is RBI Floating Rate Savings Bond?

As the name suggests, this is a bond issued by RBI. The important features of this bond are as stated below.

RBI Savings Bonds are floating rate savings bonds. The coupon (interest) you receive when investing in a bond is usually fixed. However, for floating rate bonds, the interest rate is not fixed and will fluctuate depending on the characteristics of the specified bond. Therefore, such bonds are susceptible to interest rate fluctuations.

 

Features of RBI Floating Rate Savings Bond

1) Interest Rate

  • Since this is a floating rate savings bond, the interest rates change semi-annually. This bond provides an interest of +0.35% over and above the NSC (National savings certificate) interest rate. Ex – The interest rate for 1st January to 30th June 2022 is – NSC (6.8%) + 0.35% = 7.15%.
  • The interest is paid in June and December.
  • The bond does not offer any cumulative function and the interest rate over the periods cannot be cumulated and redeemed later.

2) Investment

  • Minimum – Rs 1000 (face value of bond); further investment can be made in multiples of 1000
  • Maximum – No limit

3) Term – 7 yrs

  • Although senior citizens are given concession and can redeem their amount before the term ends.
  • Pre-mature withdrawal penalty is 50%, applicable on the last six months’ interest.
AgePre-mature withdrawal
80+ years4 years
70-80 years5 years
60-70 years6 years

 

4) Nomination

  • Only the one who has purchased the bond can assign nominees

5) Transfer Option

  • Bond can’t be transferred
  • Except in the case of death of the bond holder (only transferred to the nominee).

6) Taxation

  • As per the bond holder’s tax slab, additional TDS is also charged.
  • How to buy – Bond can be brought from all major Indian banks and paid for by cash (up to Rs 20,000), cheque, DD or net banking.
  • Also, the bond cannot be traded in the secondary market and cannot be used as collateral for the loan.

 

Eligibility

  • Indian residents can apply for this bond either individually, jointly or on behalf of a minor.
  • NRI cannot invest in this bond

 

Benefits and Risks Of RBI Floating Rate Savingd Bond
Benefits and Risks Of RBI Floating Rate Savingd Bond

Benefits / Advantages of RBI Floating Rate Savings Bond

  • Sovereign Bond: It is the safest kind of investment instrument available. As the government issues these bonds, default risk is close to zero
  • Higher Interest rates: Bond provides risk-free returns, higher than FD and post office saving schemes such as NSC.
  • Stable income: This bond is one of the options available for senior citizens devoid of regular income.

 

Risks of RBI Floating Rate Savings Bond

  • Floating Interest Rate: The Interest rates fluctuates up and down with the NSC rates and thus posing a possible threat to interest income.
  • Liquidity: These bonds have a fixed tenure, plus they cannot be traded or used as collateral for loans which means a low level of liquidity.
  • Taxation: These bonds are taxable as per the income tax bracket.

 

Who should Invest in this RBI Floating Rate Savings Bond?

The investors can be senior citizens or investors not willing to take any investment risk and, at the same time, have low or no direct source of income to avoid taxation on interest received from the bond.

 

We hope this articles helps you know about RBI Floating Rate Savings Bond. If you need any assistance on Investments, Insurance or How To Invest In Mutual Funds Feel free to contact Wealth Baba. We will try to help you out in the best possible way.

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