RBI Bonds 2021 or Floating Rate Savings Bonds | Rate of Interest | Online & Offline

RBI Bonds 2021 Investment

In this article, we will look at the features of the newly launched RBI Bonds 2021 in detail and whether you should invest in them. RBI Bonds also known as Floating Rate Savings Bonds.
The government of India has announced the again launch of floating rate savings bonds scheme. This bond was launched after 7.75% taxable savings bonds were withdrawn on May 2020.
The government came with new offerings, which is a 7 year bond, which will be open for subscription from July 1 2020, though retains many of the features of its predecessor, has changed the terms and condition of payment of interest to the investors.
The interest rate on RBI Bonds for period July 1, 2021 to December 31, 2021 and payable on January 1, 2022 remains at 7.15%, unchanged from the previous half-year.

Also Read Government Bonds India – A Detailed Guide for 2021

Now, let’s look at the features of RBI Bonds in further detail.

Features

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Eligibility

1- A person resident in India,

A - in her or his individual capacity, or
B - in individual capacity on joint basis, or
C - in individual capacity on any one or survivor basis, or
D - on behalf of a minor as father/mother/legal guardian

2- A Hindu Undivided Family

Note - Non-Resident Indians (NRI)s are not eligible to invest in these bonds.
Minimum investment

Minimum ₹ 1000/- and in multiples of ₹ 1000/-.
No Maximum limit
Interest (Floating)

1- Option – The interest on the bonds will be payable at half yearly intervals on Jan 1st and July 1st every year. There is no option to pay interest on cumulative basis.

2- Rate – The coupon/interest of the bond would be reset half yearly starting with Jan 1st, 2021 and thereafter every July 1st and Jan 1st. The coupon rate for first coupon period, payable on January 1, 2021 is fixed at 7.15%.

3- Base Rate – The coupon rate will be linked/pegged with prevailing National Saving Certificate (NSC) rate with a spread of (+) 35 bps over the respective NSC rate.
Tax treatment

Income from the bonds is taxable.

Tax will be deducted at source while interest is paid.
If an exemption under the relevant provisions of the
Income Tax Act,1961 is obtained, it may be declared in the Application Form.
Transferability

Unavailable
The Bonds held to the credit of Bond Ledger Account (BLA) of an investor shall not be transferable, except transfer to a nominee(s)/legal heir in case of death of the holder of the bonds.
Maturity period

7 years from the date of issuance.
Nomination Facility

Available
The sole Holder or all the joint holders may nominate one or more
persons as nominee in accordance with the provisions of the
Government Securities Act, 2006 (38 of 2006) and the Government
Securities Regulation, 2007, published in Part III, Section 4 of the
Gazette of India dated December 1, 2007.
Subscription

Subscription to the bonds will be in the form of cash (upto ₹20,000/- only)/drafts/cheques or any electronic mode acceptable to the Receiving Office.
Premature withdrawal

Available*

*Premature redemption shall be allowed for specified categories of senior citizens.
Facility is available to the eligible investors after Lock in period of 4, 5,
and 6 years in the age bracket of 80 years and above, between 70 to
80 years and 60 to 70 years respectively.

Penalty charges @ 50% of last coupon payment.
Post Maturity Interest

Post Maturity Interest is not payable.
Loan Facility

Not applicable

RBI Bonds Rate of Interest

The attractive feature of the Bonds is higher interest rates (7.15%)
The interest rates are re-set half-yearly, & the current interest rate on the Bonds is higher as compare to NSC (currently 6.8%), FD with Banks, Public Provident Fund (currently 7.1%).

The interest on the floating bonds is payable semi-annually on 1st Jan and 1st July every year.
The Bonds will be issued in non-cumulative form only.

Also Read RBI Bonds 2021 Calculator | Download Excel Calculator |

Why Should I Invest in RBI Bonds 2021?

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Let’s discuss the pros associated with RBI floating savings bonds:

Risk Factor

Floating Rate Savings Bonds are risk-free as it is offered by the GOI (Government of India).
the Bonds provides another investment option for the risk averse investors and for investors seeking to diversify their portfolio.
Fixed & Regular Income

The Investors will receive a periodical & regular income from the Bonds in form of interest pay-outs.
This leaves the Investors a option to use their income, either for savings or for consumption.
Floating Rate System

The interest rate is based on the floating rate system.
The RBI bonds ensures that the investors receive interest based on the interest rates in the market or rather the interest rate being offered on NSC.
In a condition rising interest rates, the advantage can be expected to be passed on to the investors but,
remember the interest reset period is six months & the rate of interest will increase only when the NSC rate increases.

Also Read Sovereign Gold Bond : Best Returns on Gold Investment | 2020-21 Dates

How to Buy RBI Bonds through Online?

Read How to Invest in RBI Bonds? | Online | Application form | Floating Rate Savings Bonds

Offline

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The RBI has allowed SBI & Associates, Nationalised Banks and 11 other Public Sector banks ( ICICI, HDFC, Axis etc.) to accept the application for Floating Rate Savings Bonds.
The application for these bonds can either be made online or offline.
Subscription to the bonds will be in the form of cash (up-to ₹20,000/- only)/drafts/cheques or any electronic mode acceptable to the Receiving Office.

Also Read RBI IINSS-C Bonds Inflation Indexed National Savings Securities-Cumulative

RBI Bonds Application Form



Also Read How to Invest in RBI Bonds through BOB, PNB, UBI & Canara Bank? 

Downside of Bonds

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Floating Interest Rate

Risky
Since the Bonds carry a floating interest rate system & the interest rates are reset periodically, the investors are exposed to the interest rate risk.
In the current times of COVID 19 impact and expectations of low growth, the interest rate risk is expected to stay for a while.
Tax Benefit

Not applicable
The Bonds do not carry any sort of tax benefits, either in the form of deduction under section 80c of the income tax act, or any exemptions for the interest income from the Floating Rate Savings Bonds.
The lack of tax advantage for the RBI Bonds makes it relatively less attractive for the tax paying investors.
Non-cumulative

The interest from the Floating Rate Savings Bonds is paid out periodically to the investors, Therefore cumulative interest option is not applicable.
The investors may lose out on the compounding effect of the interest amount that is paid out to the investors.
Liquidity

Premature withdrawal option is not applicable for every investor and the investors cannot avail any loans from financial institutions with the RBI Bonds as collateral.

Also Read Capital Gain Bonds | Interest Rate | NHAI | REC | PFCL | IRFC | How to Buy Online? |

RBI Bonds for Senior Citizens

Special privilege has been given to senior citizens in this bond,
They may take a premature exit after 4, 5 and 6 years based on age group.
Otherwise the interest due for the six months immediately preceding the exit is deducted, in case someone takes the premature exit.

Age GroupPremature Redemption
80 years and above4 Year
Between 70 to
80 years
5 Year
60 to 70 years6 Year

Also Read Senior Citizen: Top 4 Risk-Free Saving Schemes with Best Comparison

Complaint

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You may address your complaint to:

The Chief General Manager
Internal Debt Management Department
Reserve Bank Of India, 23rd Floor
Central Office, Shahid Bhagat Singh Marg,
Mumbai-400 001
Maharashtra
E- mail ID – cgmidmd@rbi.org.in

Also Read SBI Bank Pension Plan – ADS | NPS | APY | Special Term Deposit

Few Things to Look at Before Buying Bonds

Firstly, RBI bonds are not eligible for trading in the secondary market in India and can’t be used as a guarantee for loans from banks or financial institutions.
Secondly, A only holder or an only surviving holder of a bond, being an individual, can make a nomination.
Thirdly, and most importantly, The bonds in the form of BLA shall not be transferable except transfer to a nominee (s) in case of death of the bondholder.

Is FD Better than Bonds?

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Also Read RBI Bonds 2021 vs Tax Saving Fixed Deposits vs Sovereign Gold Bonds

Frequently Asked Questions

What is the date of payment of Interest for RBI Bonds?

Interest to the subscriber opting will be paid from date of issue up to 30th June or 31st December as the case may be, and thereafter half-yearly for period ending 30th June and 31st December on 1st July and 1st January.

What will be mode of payment of half yearly interest for these Bonds to the investors?

Interest on Bonds held to the credit of Bonds Ledger Account of an investor will be paid, electronically by credit to bank account of the subscriber as per the option exercised by the investor.

Whether premature exit is permitted for joint account holder if any of the individual is above 60 years of age.?

Yes. In case of joint holders or more than 2 holders of the RBI Bond, the above lock in period will be applicable even if any one of the holders fulfils the above conditions of eligibility.

Penalty for premature withdrawal

The 50 percentage of interest due and payable for the last 6 months of the holding period will be recovered in such cases,

How the Tax is deducted at Source?

Tax will be deducted at source while making payment of from time to time.

Whether interest is Taxable?

Interest on the Bonds will be taxable under the IT Act, 1961 as applicable according to the relevant tax status of the Bond holders.

Whether I can transfer the Bonds?

The RBI Bonds held to the credit of Bonds Ledger Account of an investor shall not be transferable.

Also Read SBI Capital Gain Bonds | 54EC Bonds | Features | Interest Rate 2021 | How to Buy SBI Online?

Bottom Line

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With so much unpredictability around, it is quite natural that we become additional cautious with your money. So these floating rate savings bonds might look like a fine option now, but recall your money will be locked for seven years plus. And you don’t get any tax benefits. So before going for them, surmise whether they fit well into your portfolio or not. That should be the deciding factor.

Source-RBI

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