Are you curious to know what is RBI bond? You have come to the right place as I am going to tell you everything about RBI bond in a very simple explanation. Without further discussion let’s begin to know what is RBI bond?
RBI Bonds, issued by the Reserve Bank of India (RBI), are a form of government savings instrument designed to provide individuals and organizations with a secure and attractive investment option. These bonds are backed by the Indian government, making them a low-risk choice for investors seeking a fixed and regular income. In this blog, we will explore what RBI Bonds are, their features, types, and why they are a popular investment choice in India.
What Is RBI Bond?
RBI Bonds, often referred to as Government of India Savings Bonds, are financial instruments issued and administered by the Reserve Bank of India (RBI) on behalf of the Indian government. These bonds are designed to encourage individuals and organizations to invest in a secure and reliable savings option while providing the government with a source of funds for various projects and initiatives.
Key Features Of RBI Bonds:
- Safety and Security: RBI Bonds are backed by the Indian government, making them one of the safest investment options available. The government’s commitment ensures the return of the principal amount and interest.
- Fixed Interest Rates: These bonds typically offer fixed and attractive interest rates. The rates can vary depending on the type and tenure of the bond, but they remain constant throughout the investment period.
- Tenure Options: RBI Bonds come with different tenure options, typically ranging from 7 years to 40 years, allowing investors to choose a period that aligns with their financial goals.
- Interest Payment: The interest earned on RBI Bonds is paid out periodically, which can be on a half-yearly or annual basis, depending on the bond series.
- Tax Benefits: The interest earned on RBI Bonds is taxable, but there are tax benefits available to senior citizens.
- Liquidity: While RBI Bonds are a long-term investment, they provide an option for premature withdrawal under specific circumstances. However, there may be penalties for early withdrawals.
Types Of RBI Bonds
RBI offers various series of bonds, each with its own features. Some common types of RBI Bonds include:
- 7-Year Savings Bonds: These bonds have a 7-year tenure and offer a fixed interest rate, with interest payments every six months. They are non-transferable and non-negotiable.
- Taxable Savings Bonds (7.75%): These bonds have a 7-year tenure and offer a fixed interest rate of 7.75%. The interest is fully taxable.
- Floating Rate Savings Bonds: These bonds come with a 7-year tenure and offer a variable interest rate linked to the prevailing National Savings Certificate (NSC) rate, with interest payments every six months.
- Reserve Bank of India (Taxable) Bonds, 2020: These bonds have a 7-year tenure and provide a fixed interest rate with interest payments every six months. They are available in both cumulative and non-cumulative options.
- 40-Year (Taxable) Savings Bonds: These long-term bonds come with a 40-year tenure and offer a fixed interest rate, with interest payments every six months. They are available in cumulative and non-cumulative forms.
Why Invest In RBI Bonds?
Investing in RBI Bonds offers several advantages:
- Safety: RBI Bonds are government-backed, ensuring the safety and security of the investment.
- Attractive Returns: These bonds typically provide competitive interest rates, making them an appealing option for income generation.
- Fixed Income: The fixed interest rates offer stability and predictability in income.
- Long-Term Investment: RBI Bonds are suitable for individuals and organizations looking for long-term savings and investment options.
- Support for Government Initiatives: Investing in these bonds allows individuals and organizations to contribute to various government projects and initiatives.
RBI Bonds are a reliable investment option that offers safety, attractive returns, and long-term investment opportunities. These bonds provide a stable source of income, and their government backing ensures the safety of the principal amount. While they may not provide significant capital appreciation, they are a popular choice for individuals and organizations seeking secure and predictable income streams, as well as an avenue to support government initiatives through their investments.
What Are The Benefits Of RBI Bond?
Pros of RBI Tax Savings Bond:
They are considered risk-free as they are not subject to market fluctuations. Assured Returns: The bond offers fixed interest rates, providing investors with assured returns throughout the bond’s tenure. This can be attractive to risk-averse investors who prefer predictability.
Is RBI Bond Better Than Fd?
FDs are safer than bonds because FDs are insured up to Rs. 5 lahks by DICGC (Deposit Insurance and Credit Guarantee Corporation), a subsidiary of the RBI. The insurance is applicable on both the principal and the interest for all depositors at each bank. Let’s look at the following scenario to understand this better.
Is It Good To Invest In RBI Bonds?
RBI’s Floating Rate Savings Bonds have a sovereign guarantee with almost no credit risk. Investors in the RBI’s Floating Rate Savings Bonds (FRSBs) can benefit from rates in excess of 8 percent if there are no further changes in the interest earned on small savings schemes in the next couple of months.
What Is The Interest Rate Of RBI Bond?
The coupon/interest of the bond will be reset half yearly based on National Savings Certificate (NSC) rate (Base rate) + 35bps. Half-yearly interest is payable on 1st January / 1st July. The coupon on 1st January 2021 shall be paid at 7.15%.
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