2) There is no credit risk and the bonds are completely safe because they are issued by RBI and are sovereign rated.
Is an RBI bond preferable to a fixed deposit?
The Reserve Bank of India (RBI) offers floating-rate savings bonds with a rate of interest as high as 7.15 percent. This interest rate is taxable, just like a savings account rate. The next RBI bond’s ROI will be reset on July 1, 2021. If you want to invest a lump sum, an RBI bond will give you at least a 1% to 2% greater interest rate than a fixed deposit.
Salient Features of an RBI Bond
- While single, minor, and married individuals, as well as HUFs, are eligible to invest in an RBI bond, NRIs are not.
- One bond is required as a minimum investment. The cost of a single RBI bond is Rs. 1000.
- While some banks have a maximum investment limit on fixed deposits, the RBI bonds have no such restrictions. You can put as much money into this instrument as you desire.
- The bonds have a 7-year fixed term. Premature withdrawals are, however, permitted, subject to a nominal lock-in time for various age groups.
- The bonds’ interest will be paid at half-yearly intervals on January 1st and July 1st of each year. The option to pay interest on a cumulative basis is not available.
- Starting on January 1st, 2021, the bond’s coupon/interest would be reset every six months, on July 1st and January 1st.
Are RBI bonds covered by insurance?
In the current environment, when the repo rate and yield on the 10-year G-Sec are both falling, the 7.75 percent annual interest rate given by RBI bonds appears attractive.
While private sector banks give 7.25-7.5 percent on 5-year fixed deposits, public sector banks offer only 6.25-6.75 percent every year.
Small financing banks may offer higher interest rates, but due to their limited presence, accessibility may be a difficulty. In addition, bank FDs are protected for both principal and interest up to $1 lakh. The RBI bonds are absolutely safe to invest in.
The RBI Savings Bonds, which are issued on behalf of the Government of India, are one of the safest investment options.
Individuals and Hindu Undivided Families with a minimum investment of $1,000 and no upper limit can purchase these bonds. Non-Resident Indians are not permitted to participate in these bonds, but they can be designated to receive the proceeds if the primary owner dies.
The bonds will be issued in demat format and credited to the investors’ Bond Ledger Accounts (BLA). These bonds, however, are not tradeable nor transferable on the secondary market. They can’t be used as collateral for loans from banks, financial institutions, or non-banking financial companies, either.
While interest on cumulative bonds is paid concurrently with the principal at maturity, interest on non-cumulative bonds is paid half-yearly on August 1 and February 1 for periods ending July 31 and January 31.
Investments in these bonds are not tax deductible under section 80C of the Internal Revenue Code. Interest income is also taxable at the investor’s marginal tax rate. If the total interest income in a year exceeds 40,000, a 10% TDS will be deducted at the time of interest payment.
Only invest in these bonds if you can lock in your money for seven years. Senior citizens, on the other hand, are exempt from the lock-in requirement. The lock-in period for investors in the age brackets of 60-70 years, 70-80 years, and above 80 years is 6,5 years, 70-80 years, and above 80 years, respectively. Despite this, the penalty for early withdrawal after the lock-in period is 50% of the interest due and payable for the final six months of the holding period. The bonds can be purchased from the Stock Holding Corporation of India, any nationalised bank branch, and a few private sector institutions such as ICICI Bank, HDFC, and Axis Bank. They can also be purchased through your broker’s demat accounts.
Is it possible to break RBI bonds?
If there are more than two bond holders, any one of them can meet the eligibility criteria to make withdrawals before the maturity date.
Premature withdrawal of RBI Savings Bonds carries a penalty of 50% of the interest due and payable for the final six months of the holding period.
In the secondary market, RBI Savings Bonds are not transferable. The interest earned on the RBI Floating Rate Savings Bond is fully taxable, and tax will be deducted from interest payments as needed.
Is there no tax on RBI bonds?
I Income-tax: Under the Income-tax Act of 1961, interest on the Bonds will be tax-free. (ii) Wealth tax: Under the Wealth-tax Act of 1957, the Bonds will be exempt from wealth tax. I The Bonds would be issued at par, or at a rate of Rs. 100 per cent.
Is it worthwhile to put money into RBI bonds?
RBI Bonds are not only a superior option but also a blessing in disguise in the face of dropping interest rates on fixed income schemes such as Fixed Deposits given by banks. Individuals (single, joint, or minor) and HUFs are eligible to invest in these Bonds, however NRIs are not.
What is the procedure for purchasing RBI 7.75 bonds?
1.Which offices are authorized to accept applications for Floating Rate Savings Bonds 2020 (Taxable)?
- SBI branches, Nationalised Banks, three private sector banks, and SCHIL are all available (Stock holding Corporation of India).
- Branches of any other bank that the RBI specifies from time to time in this regard.
These bonds are issued electronically and credited to the investor’s Bond Ledger Account (BLA) on the date of cash tender or realization of a draft or cheque. As proof of subscription, the purchaser will receive a certificate of holding.
- An individual who is not a Non-Resident Indian in his or her individual capacity, or in his or her joint capacity, or in his or her individual capacity on any one or survivor basis, or in his or her individual capacity on behalf of a juvenile as father/mother/legal guardian.
The bonds are issued at par, or at 100%, which means that the bond’s value will be the same as the amount paid. The bonds are available in denominations of 1000 INR and multiples thereof.
The Bonds will be repaid when 7 years have passed since they were issued. After the Bond matures, no interest will be paid.
The interest on the Bonds will be taxable under the Income Tax Act of 1961, as applicable to the Bond holders’ tax status.
YES, indeed.
This is for those who have been granted income tax exemption under the applicable provisions of the Income Tax Act of 1961. They must state this in their application (in Form A) and give a true copy of the certificate obtained from the Income Tax Authorities.
YES. In the event that the bondholder dies, he or she may name another person or persons who will be entitled to the bond’s ownership as well as any payments due on the bond.
Bonds held to the credit of an investor’s Bonds Ledger Account are not transferrable.
NO, these bonds are not acceptable as collateral for bank, non-banking financial company (NBFC), or financial institution loans.
Holders of these bonds will receive interest from the date of issue until 30th June / 31st December, as applicable, and thereafter half-yearly for the period ending 30th June and 31st December on 1st July and 1st January.
15. How will the half-yearly interest for RBI Bonds be paid to the investors?
Interest on bonds held to the credit of an investor’s Bonds Ledger Account will be sent electronically to the holder’s bank account, if the investor/holder so chooses.
Individual investors in the age bracket of 60 years and over will be allowed to pay out their Bonds early if they provide a document proving their age to the satisfaction of the issuing bank.
- For investors aged 60 to 70 years, the lock-in period will be 6 years from the date of issue.
- For investors aged 70 to 80 years, the lock-in period will be 5 years from the date of issue.
- For investors above the age of 80, the lock-in period will be four years from the date of issue.
18.Is it possible for a joint account holder to make a premature withdrawal if one of the individuals is over the age of 60?
YES, indeed.
Even if one of the holders meets the above eligibility criteria, the aforementioned lock-in period will apply to joint holders or more than two holders of the Bond.
In such circumstances, the remaining 50% of the interest due and payable for the last six months of the holding term would be recovered.
- Tax will be deducted at source and credited to the government account when payments are made on a regular basis.
The interest rate will be fixed at the NSC rate plus 35 basis points, and it will be reset after 6 months.
What happens to an RBI bond if the owner dies?
When two or more people are nominated, the title to the bonds passes to the surviving nominee/s if one of them dies. If the nominee is a minor, the holder of a Bond Ledger Account may appoint anyone to receive the Bond/amount due if the nominee dies while he or she is still a minor.
On RBI bonds, what is the TDS rate?
If TDS is deducted for interest paid on 7.15 percent RBI Taxable (Saving) Bonds, will a TDS certificate be issued? TDS certificates would be issued to all subscribers of 7.15 percent RBI Taxable (Saving) Bonds who have TDS deducted throughout the interest payment process.
Can RBI bonds be transferred?
Bonds held in the form of a Bond Ledger Account are not transferable, except to a nominee(s)/legal heir in the event of the holder’s death.
Is it possible to redeem RBI bonds?
Is it possible to redeem early? Despite the bond’s 8-year tenor, early encashment/redemption is permitted on coupon payment days after the fifth year from the date of issue. If kept in demat form, the bond will be tradable on exchanges. It can also be transferred to another investor who meets the criteria.