There has been a sharp fall in the interest rate for the small saving schemes, such as the senior citizen saving scheme, post office time deposits and public provident fund, for the quarter starting April 2020. This has made these schemes less attractive than before. In such a situation a lot of investors were exploring the option of investing in the 7.75% Government of India Bonds. Unfortunately, these bonds were discontinued on 28th May 2020. Starting 1st July, the Government has introduced a floating rate bond, also known as the RBI FRSB. These bonds offer regular half yearly interest to investors.
These floating rate bonds come with certain disadvantages:
1. The tenure is 7 years and they cannot be sold earlier.
2. The interest is taxable at the tax slab
However, one major advantage of these new RBI Bonds is that the rate, which is pegged at 0.35% higher than the interest on National Savings Certificates (NSC) changes every 6 months. This is expected to move along with inflation, thereby maintaining a close to consistent real rate of return. The RBI Savings Bonds are a good option for certain categories of investors. For example, for retired individuals who are looking for a regular income, or for someone looking to invest in very safe instruments for long period of times.