Risk wary investors could look at Floating Rate Savings Bonds

Mumbai: In its endeavour to expand the basket of investment products for
individuals offered through its Retail Direct Portal https://rbiretaildirect.org.in, the Reserve Bank of India on Monday enabled subscription to Floating Rate Savings Bonds, 2020 (Taxable).

Currently, retail investors could invest in Central Government Securities, Treasury Bills, State Government Securities and Sovereign Gold Bonds through the Retail Direct Portal. Till now, these bonds were exclusively accessible at select branches of the State Bank of India, nationalised banks, private sector banks authorised by the RBI, and other entities designated by the RBI.

According to financial experts, investors averse to risk could consider  these bonds which are offering slightly higher than fixed deposits and are safe. However, senior citizens should first exhaust the investment limits under the Senior Citizen Saving which is offering a higher interest rate.

Floating Rate Savings Bonds (FRSBs) are interest bearing, non-tradeable bonds, issued by Government of India, which are repayable on the expiration of seven years from the date of issue. There is no investment limit for investment in these bonds. Interest on the bonds will be taxable under the Income Tax Act as applicable according to the relevant tax status of the bond holders. The interest
rate will be reset half yearly and is linked to the prevailing National Savings Certificate (NSC) rate with a spread of 0.35 per cent over the respective NSC rate. Thus currently these bonds are offering 8.05 per cent. Investors can now subscribe to these bonds using various methods, including cash (up to Rs 20,000 only), drafts, cheques, or electronic modes.

“Floating rate Savings bonds can be bought by anyone. But if you are a senior citizen, you should first exhaust the Rs 30 lakh investment limit under the Senior Citizen Savings Scheme (SCSS) which is offering a higher rate of 8.20 per cent and comes with tax benefits. After having exhausted this limit, seniors can look at putting their money in RBI floating rate bonds which are offering 8.05 per cent,” said Balwant Jain, tax and investment expert.

“Investors averse to risk can look at FRSBs as they are safe and backed by the RBI instead of bank fixed deposits. These bonds are as safe as your currency notes,” remarked Jain.