RBI has introduced Floating Rate Saving Bonds in 2020 in place of RBI Savings Bonds 2018 that offered 7.75% interest rate earlier. These floating rating bonds provides a fixed rate of interest, however the interest rate is reset every 6 months. Even there are several other fixed income options for Senior Citizens like PMVVY, SCSS etc., however, they all come with a maximum investment limit which is not the case in RBI floating rate bonds. What are the features of RBI Floating Rate Savings Bonds? What is the current interest rate of RBI Floating Rate bonds? Should you invest in RBI Floating Rate Saving Bonds 2022?
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Features of RBI Floating Rate Saving Bonds 2022
RBI has introduced these savings bonds to encourage savings from the investors. One of the best feature in these bonds is that it does not have a maximum investment limit.
Here are the key feature of these savings bonds.
RBI Floating Rate Savings Bond interest rate applicable from 1st January 2022 to 30th June 2022 period is 7.15%.
The tenure of these RBI saving bonds is 7 years.
Premature withdrawals can be made by senior citizens, however, with specific T&C.
RBI Floating Rate Bond interest rate is linked to NSC rate. The interest rate is computed by considering the NSC interest rate + 0.35% (35 bps). Current NSC interest rate is 6.8%, hence RBI floating rate bond interest rate is computed as 6.8% + 0.35% = 7.15%. In future if the NSC interest rate is increased or reduced, it would affect RBI Savings Bond interest rate. All future interest payments would be done only on reset interest rate even if you have invested now.
These bonds can be invested in demat form only.
Interest would be credited directly to demat account holder bank account in January and July (every 6 months).
Since these are issued by RBI, on behalf of Govt of India, these have Sovereign guarantee i.e. 100% safe investment options.
Minimum amount of investment is Rs 1,000 and no maximum limit.
While these bonds are issued in demat form, these are not tradeable.
These bonds are not transferable to others.
TDS would be deducted as per the prevailing tax laws while making the interest payment.
What are RBI Floating Rate Bonds premature withdrawal rules?
These savings bonds can be prematurely withdrawn by senior citizens with minimum lock-in period. Once this lock in period is over, they can withdraw these bonds.
60 to 70 years – Lock in period is 6 years
70 to 80 years – Lock in period is 5 years
Above 80 years – Lock in period is 4 years
What is the taxation of interest received from these bonds?
The interest received from these bonds is taxed like any other FD interest. One need to add this under “Income from other sources” and pay necessary interest as per the income tax slab applicable to the individual.
Why to invest in RBI Floating Rate Saving Bonds 2022?
Here are good reasons to invest.
These saving bonds are issued by Govt of India and 100% safe investments.
These floating rate bonds provide 7.15% fixed interest rate (which can reset every 6 months). One can get fixed income every 6 months.
Any individual can invest as low as Rs 1,000 and get fixed income.
Unlike SCSS or PMVVY or POMIS where there is a maximum investment limit, these RBI bonds do not have maximum limits. Investors can invest any amount they wish.
Low lock-in period for Senior Citizens for premature withdrawals.
Negative Factors in RBI Savings Bonds 2022
Everything is not rosy, here are major negative factors in these bonds.
While the interest rate is fixed, it would reset every 6 months. In future interest rate can always fall. Even if you are investing today, all your future interest payments would depend on the interest rate announced in future.
Premature withdrawals cannot be done other than Senior Citizens.
Senior Citizens cannot withdraw before the lock-in period, even in case of any emergency.
These bonds are not tradeable, hence one cannot sell them on stock exchange even at lower rate. Liquidity is the main issue.
These bonds are not transferable.
These bonds are not eligible for collateral security with banks or financial institutions.
How to invest in RBI Floating Rate Savings Bonds 2022 (Taxable)?
After understanding the pros and cons, in case you thought of investing in these bonds online, you can follow these steps.
1) Login to your demat account
2) Visit Bond section (you may check for the Bonds / FD section)
3) Select the “RBI Floating Rate Savings Bonds 2020”. Since these are first issued in 2020, the name would still reflect with this.
4) Enter the amount you wish to invest
5) Allocate Funds through UPI / NEFT
6) Complete the transaction.
These bonds would be issued in your demat account within a week.
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Should you invest in RBI Floating Rate Savings Bonds 2022?
RBI bonds provides fixed income for 7 years. However the interest rate can reset every 6 months. Currently banks are offering 5% to 6% interest rates on FDs, hence these RBI bonds with high interest rate of 7.15% would definitely attract investors. I could see major drawback which is liquidity issue i.e. not tradeable and premature withdrawal cannot be done (except Sr Citizens where there are exceptions). Investors should consider all these pointers before investing in these RBI saving bonds.
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