RBI Floating Rate Savings Bonds: For risk-averse investors in India seeking a steady income stream, fixed deposits (FDs) have long been a trusted option. However, with interest rates offered by traditional banks often failing to keep pace with inflation, many are searching for better returns. The RBI Floating Rate Savings Bonds (FRSBs) 2020 (Taxable) emerge as a compelling alternative, offering several advantages over conventional FDs.
Higher Interest Rates with Market Fluctuation Protection
One of the most attractive features of FRSBs is their current interest rate of 8.05%, significantly higher than what most banks offer on FDs. This interest rate is linked to the National Savings Certificate (NSC), ensuring it adjusts to changing market conditions. Unlike fixed deposits, FRSBs protect investors from potential interest rate drops in the future, offering a hedge against inflation.
Regular Income and Flexible Investment Options
FRSBs cater to those seeking regular income. The interest earned is paid semi-annually on January 1st and July 1st, providing investors with a predictable cash flow. Additionally, the minimum investment amount starts at a low Rs. 1,000, making it accessible to a wider range of investors compared to tax-saving fixed deposits with their Rs. 1.5 lakh limit. There’s also no maximum investment limit, allowing for greater flexibility.
Safety and Security with Government Backing
FRSBs are government-backed bonds issued by the Reserve Bank of India (RBI), offering investors the highest level of security. This makes them a safe investment option for those prioritizing capital protection.
Who Can Apply for RBI Floating Rate Savings Bonds?
The Bonds are open to a broad range of investors in India, including:
- Individuals (sole or joint holdings)
- Hindu Undivided Families (HUFs)
- Charitable institutions
- Universities
It’s important to note that Non-Resident Indians (NRIs) are not eligible to invest in these bonds.
Lock-in Period and Tax Implications
While FRSBs boast attractive features, it’s crucial to understand their limitations. Unlike some FDs, FRSBs come with a lock-in period of seven years. Premature withdrawal is only allowed for specific senior citizen age groups and comes with a penalty. Additionally, the interest earned on these bonds is taxable as per the Income-tax Act, 1961.
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