- By Aditya Pratap Singh
- Sat, 13 Apr 2024 03:48 PM (IST)
- Source:JND
RBI Floating Rate Bond: If you are looking for a safe loan investment with a good return. Then RBI Floating Rate Savings Bonds (FRSB) 2020 can be a good option for you. At present, the RBI Floating Rate Savings Bond provides 8.05 percent interest every year. Detailed information about the investment instrument is given below.
How is the FRSB interest rate calculated?
The interest rate of RBI Floating Rate Savings Bonds 2020 (Taxable) is not fixed. The interest rate on Floating Rate Savings Bonds is reset every six months and is payable on the following July 1. It is linked to the interest rate on the National Savings Certificate (NSC), a small savings scheme of the central government. The interest rate on RBI Floating Rate Savings Bonds is 0.35% higher than the interest rate offered by NSC.
According to a report by the Economic Times, the interest rate of NSC is reviewed every quarter. When the interest rate of NSC increases, the interest rate of the RBI Floating Rate Savings Bond will increase. Similarly, when the interest rate of NSC goes down, the interest rate of the RBI Floating Rate Savings Bond will also go down.
8.05% interest
NSC offers an interest rate of 7.7% for the April-June quarter. As per the prescribed formula, RBI Floating Rate Savings Bond 2020 (Taxable) will continue to offer a higher interest rate of 8.05% for the next six months from July 1, 2024.
What you need to know before investing
Before you invest in an RBI Floating Rate Savings Bond for a higher interest rate, you should verify its features. RBI Floating Rate Savings Bonds 2020 (Taxable) are issued by the Reserve Bank of India on behalf of the Government of India. They come with a seven-year lock-in period.
The interest rate on RBI Floating Rate Savings Bonds will be reset twice a year. Investors receive interest semi-annually - on January 1 and July 1 every year. The interest is taxable in the hands of investors. You cannot claim any tax deduction for investing in these bonds.
There is no option to withdraw money prematurely, but senior citizens can withdraw money prematurely without penalty after the minimum lock-in period. For those aged between 60 and 70 years, the lock-in period will be six years. For those aged between 70 and 80 years, the lock-in period will be five years. Individuals above the age of 80 can withdraw their investment four years after the date of investment.
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Is investing in bonds a good option?
In comparison to banks' fixed deposits, only a few banks offer 8% interest on deposits. Most well-known banks offer interest rates of around 7 to 7.85 percent on fixed deposits. Therefore, if you only consider interest rates, RBI Floating Rate Savings Bonds with sovereign guarantees give marginally better returns. However, the interest rate on fixed deposits is usually fixed at the time of entry.
During the bond's term, the interest rate on RBI Floating Rate Savings Bonds may fluctuate. Sometimes investors may profit from volatility when rates rise and lose interest if rates fall in the future. Therefore, investors should keep two restrictions in mind – floating interest rates and no liquidity choice for general customers – while investing money in RBI Floating Rate Savings Bonds.
Raghavendra Nath, Managing Director, Ladderup Wealth Management Pvt. Ltd., says there is no doubt that it is one of the highest-yielding debt instruments currently available in India. Therefore, anyone with excess liquidity and who does not require the money for seven years may look into it.
Anshul Gupta, co-founder and chief investment officer of Vint Wealth, stated that investors who want to keep their money safe and earn consistent interest may choose RBI Floating Rate Savings Bonds. However, investors will have to accept that their payouts will decrease when interest rates fall. As a result, they should not rely on floating-rate bonds to generate consistent income.