Coronavirus has severely hit people across the world. To save economy, the central banks have been on a rate cutting spree. The returns from from traditional investments like fixed deposits have been falling. The investment options for senior citizens have become limited. Amid this turbulent time, Reserve Bank of India’s floating rate savings bonds can be one of the secure options for those who are looking for a regular return.
After discontinuing its 7.75% fixed interest rate bonds, the central bank has introduced a new floating rate savings bonds with an interest rate of 7.15%. Let’s take a look at various features of RBI floating rate bonds
Eligibility: Individuals (including Joint Holdings) and Hindu Undivided Families (HUF) are eligible to invest in these bonds. Non-residential Indians or persons of Indian origin are not allowed to apply for these bonds. You can also buy these bonds in the name of a minor as a guardian. There is an option to jointly apply for the bonds as well.
Investments and tenure: The minimum value of investment is ₹1,000 while there is no maximum limit. These bonds have a lock-in period of seven years.
Interest rates: The interest rate on these bonds is payable on a half-yearly basis. The first such payment will become due on 1st January 2021. The interest rate will be reset every six months, the first reset being on January 1, 2021. You will receive 7.15% interest rate on January 1. Unlike RBI 7.75% fixed interest rate bonds, there is no option to receive cumulative interest at the time of maturity for these bonds.
Tax benefits: The interest on the RBI floating savings bonds will be fully taxable. You will not be able to get any tax benefit in respect of interest received on such bonds. Further TDS will be applicable on the interest income.
How to buy?
You can apply for these bonds through nationalized banks and through major private sector banks including ICICI Bank, HDFC Bank and Axis Bank. The application for these bonds can either be made online or offline. One can invest to ₹20,000 in cash for applying for these bonds.
While applying for the bonds, you have to provide bank account details as the interests will be directly credited to your account.
Premature withdrawal: Those who are below 60 years of age are not eligible for premature withdrawal. Premature encashment is allowed after six years for people between the ages of 60 and 70; after five years for those between 70 and 80; and four years for those above the age of 80. However, 50% of the interest rate due and payable for the last six months of the holding period is recovered by the bonds in cases of premature encashment.
For joint investment, individuals have the option to nominate any person to receive the money under these bonds in case of death of the single or joint holders. There is an option to nominate one or more person. Separate nominations for different investments made in the bonds can also be done.