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For traditional investors dependent on fixed deposits (FD), fluctuations in bank rates often become a matter of concern. While only capital up to ₹ 5 lakh is insured under DICGC on bank FD, there is a government scheme of Reserve Bank of India (RBI) which offers much higher interest rates than normal FD with 100% Sovereign Guarantee. The name of this scheme is RBI Floating Rate Savings Bonds (FRSB).
What are RBI Floating Rate Savings Bonds (FRSB)?
RBI Floating Rate Savings Bonds are debt securities issued by the central bank on behalf of the Government of India. Since it is fully backed by the central government, there is zero default risk on both your principal and interest.
Maturity Period of this bond 7 years it occurs. It is called ‘floating rate’ because its interest rate does not remain fixed for the entire period, but is reset every six months (January 1 and July 1) based on government rules.
Interest rate formula: Why does bank FD give higher returns?
The interest rate of RBI floating rate bonds is directly linked to the National Savings Certificate (NSC) scheme of the post office.
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Interest Formula: Current interest rate of NSC + 0.35% Fixed spread of.
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Currently the rate of 7.7% is applicable on NSC, due to which investors on RBI bonds 8.05% annual interest Are getting.
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This return is currently much higher than the typical 5 to 7 year FD rates of major government and private banks (which range from 6.5% to 7.25%).
Investment limit and interest payment method
The biggest strength of this scheme is that any Indian citizen or HUF can invest in it with minimum ₹1,000 Can start investing from. At the same time, no upper limit of maximum investment has been fixed, that is, you can invest an amount of ₹ 10 lakh, ₹ 50 lakh or more with complete security.
Interest payment every 6 months i.e. 1 January and 1 July The amount is deposited directly into the investor’s registered bank account. There is no cumulative interest option available, making it an ideal option for pensioners and retired individuals seeking regular income.
Rules related to pre-mature withdrawal and tax
For general investors, this bond remains locked for 7 years and cannot be traded in the secondary market. However, senior citizens are given special exemption for premature withdrawal depending on age:
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Senior citizens between 60 to 70 years can make withdrawal after 6 years.
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Citizens of 70 to 80 years can make withdrawal after 5 years.
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Citizens above 80 years of age can withdraw money after 4 years.
Tax Rules: The interest earned on these bonds is fully taxable and is taxed as per the existing income tax slab of the investor.
How and where to invest?
Investors Official Online Portal of RBI ‘RBI Retail Direct’ Through this, you can buy this bond directly from your home without any brokerage or intermediary fee. Apart from this, one can easily apply through branches or net banking of all major public and private banks like SBI, PNB, Bank of Baroda, HDFC and ICICI Bank. This is a strong and guaranteed option of bank FD for those looking for secure and fixed income.