The RBI Floating Rate Savings Bond (FRSB) 2020 (Taxable) is currently offering an interest rate of 8.05%, surpassing the rates offered by most banks on fixed deposits (FDs). This bond’s interest rate is directly linked to the interest rate of the National Savings Scheme (NSC). It is reset every six months and pays 0.35% more than the NSC interest rate. The NSC interest rate for the July-September 2023 quarter stands at 7.7%.
Lock-in Period and Subscription Details
Investors should be aware that the FRSB has a lock-in period of seven years. Premature withdrawal is not allowed, except for senior citizens who can withdraw with a penalty after a specific lock-in period based on their age. The bonds require a minimum subscription amount of Rs 1,000 and multiples of Rs 1,000 thereafter. There is no maximum limit for investment, and the bonds cannot be used as collateral for loans.
Tax Implications and Considerations
Interest earned on the RBI Floating Rate Savings Bond is taxable in the hands of the investors. While the bond offers an attractive interest rate, it does come with some risks. As the interest rate is not fixed, there is a potential for fluctuations based on changes in the NSC interest rate. Investors should exercise caution and be aware that any rate cuts in the future could impact their returns from this instrument.
Suitability and Benefits
Despite these considerations, the RBI Floating Rate Savings Bond presents attractive features for certain investors. Those with excess liquidity who do not require the invested funds for seven years can benefit from this bond. It provides a higher yield compared to FDs and other small savings instruments such as the NSC and Post Office time deposit and Monthly Income Scheme. Additionally, as these bonds are issued by the Reserve Bank of India (RBI), they come with sovereign guarantees, ensuring the full protection of invested capital.
Table: Key Information on RBI Floating Rate Savings Bond
| Interest Rate | 8.05% |
|---|---|
| Linked to | National Savings Scheme |
| Lock-in Period | 7 years |
| Subscription | Minimum of Rs 1,000 |
| No maximum limit | |
| Premature Withdrawal | Only for senior citizens with penalties |
| Taxation | Interest is taxable |
Investors should carefully assess their financial goals, risk tolerance, and investment horizon before making a decision. It is advisable to consult with a financial advisor or investment professional to determine the suitability of the RBI Floating Rate Savings Bond for their individual circumstances.
