For investors looking at high safety and reasonably attractive returns, the RBI floating rate savings bonds 2020 (taxable) could be a sound investment option.
The interest rate on these bonds is not fixed, but is linked to the National Savings Certificate’s rate. RBI bonds offer NSC’s interest plus another 35 basis points. Interest is paid out twice a year – in January and July.
Since returns on the NSC were reset on April 1 at 7.7 per cent, the interest rate on the RBI bonds is set at 8.05 per cent from July 1 onwards.
These bonds run for a tenure of seven years. RBI taxable bonds are available for all citizens.
Also read: Why RBI Floating Rate Savings Bonds are suitable for some
Healthy rate on offer
Given that rates are in excess of 8 per cent, which is higher than the interest offered by most public sector and large private banks, investors can park a portion of their debt portfolio in these bonds. Of course, bank rates are fixed once you lock into them, while RBI bond coupons can vary based on the interest rate scenario. But given that inflation is still under the watchful radar of the RBI and global central bankers continue to be hawkish on inflation as well as interest rates, it appears that any fall or cut in interest rates may not be on the horizon for at least a year down the line. Also, interest rates on small savings schemes are usually reset with a lag .and this may also help.
Apart from the Senior Citizens Savings Scheme (SCSS), retirees can consider these bonds for regular pay-outs, as rates are better than annuity products (not strictly comparable) where the best of insurers offer yields of close to 7.4 per cent.
One advantage of this scheme is that there is no maximum limit for investment, as against many small-saving schemes such as SCSS and POMIS (Monthly Income Scheme) that have an upper ceiling.
Premature withdrawals are allowed only for senior citizens in the RBI bonds. The lock-in period is reduced by one year for every slab of 10 years, starting from 60.
The interest paid is taxable at your applicable slab.
SBI, Bank of Baroda, HDFC Bank, ICICI Bank and Axis Bank, among a few others, allow you to buy these bonds. A branch visit may be required though.