RBI Floating Rate Savings Bond: Eligibility, Interest Rate, Investment Limit, Tenure

RBI Floating Rate Savings Bonds 2020 (Taxable)

The Government of India has announced the launch of the RBI Floating Rate Savings Bonds 2020 (Taxable) in its notification dated 26 June 2020. As per the circular, the bonds will be open for subscription with effect from 1st July 2020. These bonds will offer the investors a new risk-free investment option to the investors because of its backing by the Government of India. As the name implies “Floating Rate Bonds”, these bonds will not carry a fixed rate of interest rather the interest rates will be subject to revisions by the government every 6 months. The government has decided to keep the interest rate at 7.15% for the interest payable on its first coupon period i.e which will be payable on 1 January 2021.

Earlier on 27 May 2020, the Reserve Bank of India had announced the cessation of  7.75% RBI Bonds (Taxable) with effect from the closing of business hours on 28 May 2020. Now the Government has launched Taxable bonds with some modifications with regards to the interest rates, payouts & others.

Let’s look at some of the features of these new RBI Floating Rate Savings Bonds 2020 (Taxable) to know more about them:

1. Eligibility Conditions for Investing in RBI Floating Rate Bonds

Investments in RBI Bonds can be made by any of the following:

  1. Indian Resident Individuals (individually or on a joint basis)
  2. For Joint- On any one or survivor basis
  3. Resident Individuals on behalf of a minor as parents or Legal guardian
  4. Hindu Undivided Families (HUF)

Non-Resident Indians(NRIs) are not eligible to invest in these bonds. 

2. Investment Limits for RBI Bonds

The minimum amount required to make investments in RBI Floating Rate Bonds is Rs.1,000 (face value) and in multiples of Rs.1,000 thereafter. Bonds will be issued at par carrying the face value of Rs.1,000.

No upper limits for the investments make it a suitable option for making large lump-sum investments. 

3. Investment Tenure 

The GOI Floating Rate Bonds have a fixed maturity period of 7 years from the date of issuance just like the 7.75% RBI Bonds.

4. Pre-Mature Withdrawals

Pre-mature encashments are only allowed in the case of senior citizens (above the age of 60) subject to the penalty fees of an amount equivalent to 50% of the last interest payment. Here are the minimum lock-in period for senior investors in different age brackets:

  1. Investors in the age brackets 60-70 years- Minimum Lock-in period of 6 Years
  2. Investors in the age brackets 70-80 years- Minimum Lock-in period of 5 Years
  3. Investors in the age group of 80 Years & above- Minimum Lock-in period of 4 Years

5. Interest- Rates, Payout Options & Payable Dates

Talking about the rules regarding interest rates, major modifications have been made in Floating Rate Bonds. Let’s look at these features to know about the rules regard to interest rates:

1. Interest Rates: Unlike 7.75% RBI Bonds which carried a fixed rate of interest of 7.75%, the RBI Floating Rate Bond will have floating interest rates with subject to revisions from the government semi-annually. For the first interest coupon payout, the GOI has fixed a rate of 7.15% which will be payable on January 1, 2021.

2. Interest Payable dates: Interest Rate Payouts will be made semi-annually to the bondholders for periods up to 30 June & 31st December, where interest shall be payable on the dates 1st July & 1st January.

3. Interest Payout Option: Unlike the 7.75% bonds where the bondholders had the options(Cumulative or Non-Cumulative) to choose for the interest payouts, these bonds would come only with Non-cumulative feature where interest will be paid semi-annually as & when it becomes payable.

Here, Investors will not have the option of choosing a Cumulative option where interest is accumulated & is paid at the maturity of the scheme.

6. Taxation of RBI Floating Rate Bonds

The Interest earned on RBI Floating rate bonds will be taxable in the hands of Investors as per the income tax slab rate applicable to the investors

TDS(Tax Deducted at Source) will be deducted at the source while the interest payments will be made to the investors.

These bonds would not serve the tax-saving purposes for the investors as the investments are not eligible for claiming tax deductions under section 80c of Income Tax Act,1961.

7. Nomination Facility

The Bondholders or Investors(individual investors or on a Joint basis) will have the facility to nominate one or more persons who would be entitled to receive the payments & amount at the maturity upon the death of the bondholders.

The investors can cancel or make changes in the nominations by requesting & filling the required details in the Form D to the authorized office.  

8. Transferability

The Floating Rate Bond cannot be transferred to other people except for in case of the death of bondholders where the bonds are transferred to the nominees. Also, these bonds are not tradeable in the secondary markets and are not eligible to be used as a collateral for taking loans from banks & financial institutions.

9. How to invest in RBI Floating Rate Taxable Bonds? 

The Investors can subscribe to the RBI Floating Rate bonds by purchasing from the authorized receiving office through cash(up to Rs.20,000), cheques or drafts. The Registered offices consist of the branches of Public sector banks and 4 private sector banks including Axis Bank, ICICI Bank, HDFC Bank & IDBI Bank. On purchase, these bonds will be held by the investors in the electronic form, at the credit of the holder in BLA(Bond Ledger Account), opened with the receiving bank.

Comparison of 7.75% RBI Bond and Floating Rate Savings Bond 2020

HeadRBI Floating Rate Bonds 2020 (Taxable)7.75% RBI Bonds (Taxable)
Interest RateInterest rates are subject to revisions by the GOI every six months. For the first coupon payment on 1 January 2021, the interest rate has been fixed at the rate of 7.15%.7.75% fixed interest rate
Interest Payout OptionBondholders only have a Non-cumulative option for interest payouts where interest is paid semi-annually for the due period. 

Investors had two payout options:

  1. Cumulative (interest accumulated & paid at the maturity)
  2. Non-Cumulative (interest paid semi-annually as & when payable)
Interest Payable DatesInterest Payable on 1st January & 1st July for the semi-annual periods of up to 31st December & 30th June.Interest Payable on 1st August & 1st February for the interest accrued for the dates up to 31st July & 31st January
Premature WithdrawalsAllowed only for senior citizens.Allowed only for senior citizens.
Investment Limits

Minimum- Rs.1,000

Maximum- No limit

Minimum Rs.1,000

Maximum- No limit

Investment Tenure7 Years7 Years

No taxation benefits.

Interest earned on taxes applicable in the hands of investors.

No taxation benefits.

Interest earned on taxes applicable in the hands of investors.

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