Last updated: 05 May, 2021 | 02:17 pm
The equity market looks very attractive to most people. Statements like below can force many to put all their money into the equity market.
If you had invested Rs 1 lakh in Bajaj Finance in 2010, it would have become Rs 1.28 crore in 2021.
If Bajaj Finance is tempting you to invest in the equity, read this - If you had invested Rs 1 lakh in Yes Bank in March 2017, it would be Rs 5000 in 2021.
It tells you something very important related to equity class - equity can give you higher returns, but it comes with risk. If you are ready to take the risk, only then invest in equity. If you decide to invest in equity, invest only a certain percentage of your total investment in it, depending on your risk profile. Diversification is one of the key parameters in investing, and you should balance your equity investment with other financial instruments that give you good guaranteed returns.
When we talk of fixed returns investment options, most investors turn to fixed deposits. At present, the problem with fixed deposits is the low interest rate. So are there any other options?
One such investment option is given by the Reserve Bank of India - Floating Rate Bonds (RBI bonds).
RBI bonds were launched last year on 1 July 2020. Below are some of the features of these bonds:
RBI Bonds: Interest rates - The interest the RBI is offering is better than the fixed deposits interest rate. The interest rate will be floating and will reset every six months. At the start of the scheme (1 July 2020), the interest rate offered was 7.15%. On 1 January 2021, the RBI announced no change in the interest rate, and it stayed at 7.15%. The next reset is supposed to happen on 1 July 2021.
It is a good option if you are looking to get a regular income. You will get interest on your total investment every six months.
Interest rate calculation - The RBI has decided to fix the interest rate on these RBI bonds to 0.35% above the prevailing NSC rate. The government reviews the NSC interest rate every quarter. The government calculates the NSC interest rate using a formula suggested by the Shyamala Gopinath Committee. As per the committee, the interest rate on small savings schemes should be 0.25-1% higher than the yields of government bonds of similar maturity.
Taxation - The interest you receive from the bonds will be taxed as per your income tax slab. Further, TDS is also applicable to the interest income you earn.
For example, if you invested Rs 1 lakh in the bonds, you will earn Rs 3575 once on 1st January and then the same amount on 1st July. The total amount of Rs 7150 gets added to your taxable income (if both payments are received in the same financial year), and you will be taxed as per your income tax bracket.
Premature withdrawal - Premature is only allowed if your age is above 60 years, subject to a minimum lock-in period depending on your age.
How to buy these bonds?
You can purchase these bonds through any nationalized banks like ICICI Bank, HDFC Bank, Axis Bank, SBI, etc. The bonds will be issued to you in electronic form and will be available in your Bonds Ledger Account.
Comparison between FD and RBI Floating Savings Bond
Should you buy these bonds?
The first thing you need to understand in such investment options is the lock-in. You should only invest that money in buying these bonds that you don’t need for the next seven years. It is an excellent option for senior citizens who are not happy with the low fixed deposit interest rate (between 5 to 7 percent).