The Reserve Bank of India announced the launch of floating rate savings bonds (taxable) 2020 at an interest rate of 7.15%. The floating interest rate on these bonds will be subject to resets every 6 months, with its first reset slated for 1st January 2021.
There are several crucial changes to this bond compared to the withdrawn RBI bonds that earned interests at the rate of 7.75%. Take a look at the essential details mentioned below to know all about the newly announced RBI floating interest rate bonds before investing.
Essential facts to know before investing in RBI’s floating rate bonds
Discussed below are the intricacies of RBI’s floating rate savings bond that one should keep in mind before investing.
Similar to the earlier 7.75% RBI or GOI bonds, the new floating rate bonds will be repayable after 7 years from the date of issue. However, individuals, other than some specific categories of investors, cannot withdraw the invested amount before the lock-in period of 7 years is over.
Consumers, including those in a joint holding, and Hindu Undivided Families are eligible to invest in the RBI floating rate bonds. NRIs, however, are exempt from investing in these bonds.
Floating interest rate
RBI has launched the floating rate bonds at an interest rate of 7.15%, replacing the previous fixed-rate 7.75% RBI bonds. The interest rate will be reset twice a year and investors will receive the interest payable on bonds every 6 months. Hence, the new floating rate bonds eliminate the cumulative interest payment option, wherein investors could receive interest at the time of maturity.
The bonds are available for subscription from July 2020, and the first interest reset will take place on 1st January 2021.
The floating rate bonds can thus allow investors the benefits of rate resets every 6 months. On the other hand, individuals can also opt for a personal loan on floating interest rate to improve their finances. It can help borrowers understand the trend of repo rate cuts and keep their loan repayment liability in check.
If one invests in RBI bonds at a floating interest rate, the interest received will be taxed based on the income tax slab his/her income falls under. Apart from that, TDS (tax deducted at source) will also be deducted from the interest income.
Amount of investment
The minimum investment in RBI bonds at a floating interest rate in Rs.1,000 and in multiples of Rs.1,000 post an initial investment. There is no maximum limit to the investment amount in these bonds.
How to invest in RBI’s floating rate savings bond?
If one is willing to invest in RBI bonds at a floating interest rate, knowing the detailed procedure to do so helps initiate the investment with minimum hassle.
Individuals can invest in the RBI floating rate bonds through cash limit of up to Rs.20,000. Other than that, they can also invest in the form of drafts, cheques or by any acceptable electronic mode of payment.
It must be remembered that the bonds will be issued only in electronic form and held in the investor’s bond ledger account.
Certain things to keep in mind before investing
Although investing in RBI bonds at floating interest rates is attractive and can enhance one’s financial outlook, one must keep specific factors in mind before investing.
- If bonds are held by just an individual, he/she can make a nomination. The same also applies to the sole surviving holder of a bond.
- The bonds are not transferable except for transfer to the nominee or legal heir in case of death of the Bond Ledger Account Holder.
- Bonds under the new RBI floating rate savings bonds category cannot be used as collateral to avail loans from financial lending institutions.
Nevertheless, individuals requiring additional finance without any collateral can do so by opting for personal loans. One can further enjoy the benefits of repo rate cuts by opting for a personal loan on floating interest rate.
Financial institutions like Bajaj Finserv offer attractive personal loans at both fixed and floating interest rates, allowing borrowers to choose as per their convenience. They also provide a personal loan EMI calculator to help borrowers decide the suitable loan amount and repayment tenure, thus helping them plan personal loan EMI payment better.
The lender also brings pre-approved offers on several credit products like personal loans and business loans to make financing hassle-free and time-saving. One can check the pre-approved offer by entering his/her name and phone number.
As for the RBI bonds, keeping all the mentioned factors in mind, one should be able to make an informed decision before investing in the newly launched floating rate savings bond. This is a good option for investors who wish to avail the benefits of interest rate resets and improve their financial lookout.
So, RBI’s new floating interest savings bond is an attractive investment option for those willing to avail interest benefits. The factors discussed above should help one to decide whether to invest in bonds on a floating interest rate.
Borrowers, on the other hand, can avail a personal loan on floating interest rate for convenient loan repayment. It is also advised to know about the factors affecting personal loan interest rate for an informed decision.