Government launches 7.15% floating rate bonds: Here's all you need to know

The floating rate bonds have been launched in lieu of earlier withdrawn 7.75 per cent RBI bonds. The interest rate on the newly launched bonds will reset in every six months with the first reset date being January 1, 2021.

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A sole holder or a sole surviving holder of a RBI bond, being an individual, can make a nomination.
The government has announced the launch of Floating Rate Savings Bonds, 2020 (Taxable) with an interest rate of 7.15 per cent. The bonds will be available for subscription July 1, 2020 onwards. As per the Reserve Bank of India (RBI) press release, the interest rate on these bonds will be reset every six months, the first reset being on January 01, 2021. There is no option to pay interest on cumulative basis i.e. interest will be payable every six months instead of having an option to receive it at maturity.

These bonds have been launched in lieu of the earlier withdrawn 7.75% RBI bonds. The 7.75% RBI bonds offered fixed interest rate for the tenure of the bonds. Further, they also offered the option to receive the interest either in cumulative (payable at maturity) and non-cumulative basis (payable every six months).

Here is a look at the features of the newly launched floating rate bonds, according to the RBI press release:

Who can invest in these bonds?
Individuals (including Joint Holdings) and Hindu Undivided Families (HUF) are eligible to invest in these bonds. NRIs cannot invest in these bonds.

How much can you invest?
There will be no maximum limit for investment in the bonds. The minimum investment starts from Rs 1,000 and in multiples of Rs 1,000, thereof.

What is the tenure of the bonds?
The bonds shall be repayable on the expiration of seven years from the date of issue. Premature redemption shall be allowed for specified categories of senior citizens. This is similar to the earlier withdrawn 7.75% RBI Taxable Bonds.

How much is the interest and how will be payable?
The interest on the bonds is payable half-yearly on 1st January and 1st July every year. On 1st January 2021, interest shall be payable at 7.15%. The interest rate for next half-year (which is due on July 1, 2021) will reset every six months, the first reset being on January 1, 2021. There is no option to pay interest on cumulative basis. This would mean that once the interest on bonds are due, it will be credited to the investor's bank account at the same time instead of payable at maturity.

How will the interest be taxed?
Interest received from these bonds will taxed as per the income tax slab applicable to your income. Further, TDS will be applicable on the interest income.

How to invest in these bonds?
Investment in these bonds will be in the form of cash (up to Rs 20,000)/drafts/cheques or any electronic mode acceptable to the Receiving Office. Applications for the bonds in the form of Bond Ledger Account will be received in the designated branches of SBI, nationalised banks, IDBI Bank, Axis Bank, HDFC Bank and ICICI Bank. The bonds will be issued only in electronic form and held at the credit of the holder in an account called Bond Ledger Account, opened with the Receiving Office.

Points to remember
  • The bonds are not eligible for trading in the secondary market and cannot be used as collateral for loans from banks, financial institutions, NBFCs etc.
  • A sole holder or a sole surviving holder of a bond, being an individual, can make a nomination.
  • The bonds in the form of BLA shall not be transferable except transfer to a nominee(s)/legal heir in case of death of the holder of the bonds.

To know more about the bonds click here
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