Government Launches Floating Rate Savings Bonds (FRSB) 2020

WHAT IS A BOND?

A bond is a fixed income instrument that represents a loan made by an investor to a borrower.

The government is launching the Floating Rate Savings Bonds 2020 (Taxable) scheme from July 01, 2020.

The Floating Rate Savings Bonds 2020 (FRSB Bonds) will have a tenure of 7 years and the interest rate will keep varying during the tenure of the scheme.

ABOUT INTEREST RATE

• Currently, the rate of interest has been set at 7.15%
• The interest rate on these bonds will be reset every six months, the first reset being on January 01, 2021.
• There is no option to pay interest on a cumulative basis i.e. interest will be payable every six months instead of having an option to receive it at maturity.

HOW MUCH CAN YOU INVEST?

• The notes have a minimum subscription of Rs. 1,000 and you can subscribe in multiples of Rs. 1,000.
• There is no maximum limit for investment in them.

WHO CAN INVEST IN THESE BONDS?

Individuals (including Joint Holdings) and Hindu Undivided Families (HUF) are eligible to invest in these bonds. NRIs cannot invest in these bonds.

TENURE OF THE BONDS?

• The bonds shall be repayable on the expiration of seven years from the date of issue.
• Premature redemption shall be allowed for specified categories of senior citizens.

TAX ON INTEREST?

Interest received from these bonds will tax as per the income tax slab applicable to your income.

POINT TO REMEMBER

The bonds are not eligible for trading in the secondary market.
Also, it cannot be used as collateral for loans from banks, financial institutions, NBFCs, etc.

These bonds have been launched in lieu of the earlier withdrawn 7.75% RBI bonds.

The 7.75% RBI bonds offered a fixed interest rate for the tenure of the bonds.

CONCLUSION

Given the current situation, these bonds are a decent offering, considering the safety aspect and no upper limit for investment.

A floating rate can adjust higher when overall rates in the economy go up.

Alternatives for investors include –

The Public Provident Fund (PPF), National Savings Certificate (NSC), Sukanya Samriddhi Yojana (SSY), and Kisan Vikas Patra (KVP).

*image source from Google

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