RBI Issues New Savings Bond!

Last updated: 02 Jul, 2020 | 03:49 am

RBI Issues New Savings Bond!

The Reserve Bank of India is launching new savings floating-rate bond to replace the previous 7.75% fixed rate savings bond. Here are a few salient features:

  • Very safe: These are one of the safest investment options available as they are issued by RBI and are backed by Government of India. They have virtually zero credit risk.
  • Floating rate: You do not have to worry about locking in lower interest rate as this instrument is offering a floating rate i.e. (NSC Rate + 0.35%). NSC rate is the National Savings Certificate rate which changes with change in 10Y G-sec. Therefore, when market rate increases, so will the interest rate on your bonds. For eg. Currently, the repo rate is 4%, 10Y G-sec is 5.9% and the NSC rate is 6.8%. As per the bond, you will get (6.8 + 0.35) = 7.15% as your interest rate. Now as market interest rate increases, i.e. G-sec and repo rate increases, NSC rate will also increase and therefore your returns would also increase. Below is a chart displaying how the NSC rates have changed vis a vis 10Y G-sec and repo rates over the last 2 years.
  • Interest rate comparison: The interest rate offered by this bond is one of the best considering the Sovereign nature of the bond. The table below shows a comparison of similarly rated products currently available:

As an investor, you are protected from market interest rate movement and you do not have to worry about interest rates changing. This unique feature along with Sovereign nature of the bond makes this investment an excellent option for low-risk investors.

Details of the Bond:

Face Value: Rs. 1000

Tenure: 7 years

Minimum Investment: Rs. 1000

Interest Rate: NSC Rate + 0.35% (currently, 7.15%)

Interest Payout Frequency: Semi-Annual (Every year on 1st January and 1st July)

Taxation: Interest will be taxed as per your tax slab

Kindly note the following:

  • The bond has a lock-in period of 7 years for investors below the age of 60. Therefore, it cannot be redeemed before maturity.
  • The bond cannot be traded or transferred or used as collateral for loans.

Senior Citizen Benefit:

  • i) Investors between the age of 60-70 can opt for premature encashment after completing 6 years.
  • ii) Investors between the age of 70-80 can opt for premature encashment after completing 5 years.
  • iii) Investors above the age of 80 can opt for premature encashment after completing 4 years.

INDmoney View:

If you have a low to moderate risk profile then do invest in this bond.

Click on the Ask Advisor button to Invest In this bond or to understand more about this investment.

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