Floating Rate Savings Bond

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On July 1, 2020, the RBI introduced the Floating Rate Savings Bond (taxable), with an interest rate of 7.15 per cent. The interest rate bonds are reset every six months, on the first of July and the first of January of each year. However, nothing has altered since its inception. What exactly is a variable rate savings bond, and who should buy one? This article will provide you with a thorough understanding of this financial product.

What is a Taxable Floating Rate Savings Bond?

A variable rate savings bond (taxable) is a government of India debt product. It is a floating rate instrument, which implies that the interest rate or coupon rate is not set and will change over time.

There is a benchmark rate that governs how interest rates vary under the supervision of the RBI. The minimum investment in this instrument is Rs. 1000, with no maximum restriction. It pays interest on a semi-annual basis. On July 1st, 2020, it was officially launched.

This is a risk-free investing choice because it is a government bond, thus there is nearly no danger. These bonds have a seven-year maturity. However, there is a specific provision for older folks that allows them to redeem the bond before it matures.

What are the requirements for investing in a variable rate savings bond?

According to RBI standards, the following are the qualifying conditions for investing in these bonds:

  • The investor does not have to be a resident of India.
  • In his or her capacity, or jointly, or on the basis of either-or survivor, or on behalf of a minor as a father/mother/legal guardian
  • A Hindu Undivided Family (HUF).

Features of Floating Rate Saving Bond (Taxable)

  • These bonds’ interest rates are liable to vary every six months in accordance with the benchmark rate. If the benchmark rate remains unchanged, the interest rate may also remain unchanged. However, the RBI is required to declare the interest rate for the following six months every six months. For example, the RBI just published the coupon rate for the period July 2021 to December 2021.
  • The interest rate on the National savings certificate serves as the benchmark rate. The current NSC interest rate is 6.8 per cent. As a result, the interest rate on a floating rate savings bond is 6.8 per cent +.35 per cent = 7.15 per cent. It hasn’t changed since the NSC interest rate hasn’t moved for the July and September quarters.
  • The contract has a seven-year lock-in duration. Senior citizens can redeem it after 6 years under a specific clause, while super senior persons can redeem it after 5 years.
  • These are tax-exempt bonds. Interest earned on these bonds is taxed. The interest amount will be applied to your taxable income and taxed according to your tax bracket.
  • These bonds can be transferred to the nominee but not exchanged. When the bondholder dies, the bond is automatically transferred to the nominee.
  • It can also be used as collateral for loans.

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