When it comes to secure investments in India, RBI Bonds stand out as a reliable option. These bonds, issued by the Reserve Bank of India (RBI), allow investors to earn interest while keeping their capital safe. The most prominent among them is the Floating Rate Savings Bonds 2020 (Taxable). In this article, we’ll delve into the details of these bonds, including their interest rates, benefits, and the process of investing in them.

Floating Rate Savings Bonds 2020 (Taxable) – Interest Rates

The Floating Rate Savings Bonds 2020 (Taxable) offer a variable interest rate linked to the National Savings Certificate (NSC) interest rate. The formula used is NSC interest rate + 0.35%. For instance, if the NSC interest rate is 7% for the first half of 2023, the interest rate on these bonds would be 7.35%. This linking mechanism ensures that the bond interest rate adjusts with changes in the NSC rate, providing a cushion against inflation.

Comparatively, older RBI Bonds, such as the 7.75% and 8% RBI Bonds, had fixed interest rates of 7.75% and 8%, respectively. These bonds paid interest twice a year and offered a cumulative interest option, where the interest would compound and be paid out at the end of the bond’s tenure.

Who Should Invest in RBI Bonds?

The Floating Rate Savings Bonds 2020 (Taxable) are particularly attractive for investors seeking to generate steady income while protecting their principal amount. Here are some key features –

1. Zero Credit Risk – These bonds are backed by the RBI, ensuring the safety of your investment.
2. Half-Yearly Interest Payment – Investors receive interest payments twice a year.
3. Inflation-Adjusted Interest Rate – The interest rate is indirectly linked to inflation through the NSC rate, offering a hedge against inflation.
4. Lock-In Period – The bonds come with a minimum lock-in period of 4 years.

These attributes make these bonds suitable for investors such as retirees and business owners who need a stable and inflation-adjusted income stream without risking their capital.

For the discontinued 8% and 7 .75% RBI Bonds, the fixed interest rates and cumulative interest options made them appealing to investors not necessarily looking for regular income but rather capital growth. However, during periods of high inflation, the fixed-rate nature posed a risk of lower real returns.

How to Invest in RBI Bonds

Investing in RBI Bonds can be done both offline and online. Here’s how –

Offline Investment Process –

• RBI Bonds can be purchased at designated branches of banks such as HDFC Bank, SBI, ICICI Bank, IDBI Bank, Axis Bank, or any nationalised bank.
• Investors must submit an application and bank account details to receive interest payments and the initial investment upon maturity.

Online Investment Process –

• Online investing is more convenient and can be done through platforms such as RBI Retail Direct, ICICI Bank, and Axis Bank.
• The bonds are issued electronically and held in Bond Ledger Accounts (BLAs).

Taxation and Withdrawal of RBI Bonds

Taxation on Interest –

• Interest earned from RBI Bonds is taxable according to the investor’s marginal income tax slab rate. For instance, if you are in the 30% tax bracket, you will have to pay 30% tax on the interest payments received.

Taxation on Capital Gains –

• There are no capital gains or losses associated with RBI Bonds since they are purchased and redeemed at face value.
• These bonds are not transferable, meaning they cannot be sold to another party for a profit.

Conclusion

RBI Bonds, particularly the Floating Rate Savings Bonds 2020 (Taxable), offer a secure and stable investment option for those looking to earn inflation-adjusted interest. With the backing of the RBI, zero credit risk, and a variable interest rate tied to the NSC rate, these bonds are ideal for conservative investors seeking steady income. Whether you are a retiree, a business owner, or simply a risk-averse investor, RBI Bonds can be a valuable addition to your investment portfolio, ensuring safety and reliability in an unpredictable economic environment.

By understanding the features and benefits of RBI Bonds, investors can make informed decisions that align with their financial goals and risk tolerance. Investing in these bonds can be a strategic move to secure a stable and tax-efficient income stream for the future.