The 8% Savings Bonds Scheme has finally been replaced by the 7.75% Savings Bonds Scheme. The Government of India announced on Monday, January 1, that 8% GOI Savings (Taxable) Bonds, 2003 will cease for subscription with effect from the close of banking business on Tuesday, the 02nd January, 2018, giving the impression that the scheme is being closed. However, later Subhash Chandra Garg, Secretary, Department of Economic Affairs, Ministry of Finance, tweeted that the 8% Savings Bonds Scheme, also known as RBI Bonds Scheme, is not being closed, but is being replaced by the 7.75% Savings Bonds Scheme.
Now the question is: Is the 7.75% Savings Bonds Scheme in its new avatar a good bet for investors? And what should the investors do? However, before taking your call, let us first take a look at what was the 8% Savings Bonds Scheme?
8% Savings (Taxable) Bonds, 2003
The Government of India had issued 8% Savings (Taxable) Bonds, 2003 in April 2003. The salient features of the Bonds included:
# The Bonds could be held by an individual, not being a Non-Resident Indian, as well as a Hindu Undivided Family, among others.
# 8% per annum rate of interest
# While the interest on bonds was taxable according to the relevant tax status of the bond holder, wealth tax was exempted under the Wealth-Tax Act, 1957.
# 100% risk-free investment option
# Investment Amount
Minimum – Rs 1,000
Maximum – No upper limit on investment in bonds
# Long Maturity Period
Bonds mature on the expiration of a period of 6 years from the date of issue
# Nomination facility available for sole-holders
Is the 7.75% Savings Bonds Scheme a good option?
Now as the 8% Savings Bonds Scheme has been replaced by the 7.75% Savings Bonds Scheme, the question arises: Is it still a good bet for investors?
Financial experts say that this was expected in this falling interest regime. When interest rates on almost every deposit or investment scheme are falling, the interest rate on the bond schemes can’t be expected to remain the same. However, despite the dip in the interest rate, the bond scheme still remains a good option especially for risk-averse investors.
“The change in the RBI Bonds is surely a dampener since these bonds have been in favor with most investors. The interest rate deduction is by 25 basis points which makes a lot of difference when bought for regular income. However, in my view, 7.75% interest rate is still attractive when compared to the same taxable instruments. For instance, bank FDs’ rate of interest has gone below 7% and the rates of small savings schemes, barring SCSS, also stand below what these bonds are offering. A 5-year NSC now offers 7.6% interest. Looking at this scenario, these bonds are still an attractive investment option, though investors should start looking at other alternatives,” says Jitendra P S Solanki, MCSI, CTEP, CFP and Financial Planner for Special Needs Dependent Families.
Adhil Shetty, CEO, Bankbazaar.com, says, “While the new bond scheme may be a good option for risk-averse investors, it is not beneficial for someone looking to invest for a mid or short term. Instead one should consider ELSS for investment as the scheme is known to provide much better returns for a similar period. According to the CRISIL Mutual Fund Ranking, the top ELSS funds delivered returns between 11.4% and 19.5% for a 3-year tenure, which when compared to the savings bond scheme that previously stood at 8% is much higher. Moreover, the lock-in period for ELSS schemes is just 3 years compared to the Savings Bonds Scheme which has a fixed tenure of 6 years.”
Thus, take your call based on your requirement as well as risk profile.