There is no upper limit to invest in GOI Bonds and overall volumes have gone up to 10 times in the last 2 months.
By Mohit Mittal
In a downward interest rate scenario, when the Banks and NBFCs are reducing their Interest Rates beyond 7 per cent per annum there is an attractive offering 7.75 per cent Savings (Taxable) Bonds, 2018, issued by Government of India for Resident Individual Clients and HUF (Hindu Undivided Family).
As the name represents, these Bonds are offering 7.75 per cent p.a. returns for 7 years suitable for Retail Investors seeking Highest Safety and Regular Income.
In the recent past, we have seen a jump in the overall investment in GOI Bonds since there is an alpha of approx. 0.75 per cent-1 per cent in comparison to Bank Fixed Deposits, a lot of Senior Citizens and retirees have chosen GOI Bonds as a safer option offering higher Returns. There is no upper limit to invest in GOI Bonds and overall volumes have gone up to 10 times in the last 2 months.
Any individual, not being a Non-Resident Indian; either in Individual Capacity or on a joint basis can invest in GOI Bonds. Minor can also invest through Guardian.
These Bonds come up with both Regular and Cumulative Income options and basis the cash flow requirement of the investor, the same can be opted at the time of Investment. In Regular Scheme, Interest is paid on a Half-Yearly basis.
Interest on the Bonds will be taxable under the Income Tax Act, 1961 as applicable according to the relevant tax status of the Bondholders. TDS is applicable on the Interest Income, while eligible investors have the option to submit Form 15G/H.
Since the Bonds are not tradeable in the Secondary Market, the same can be redeemed at the time of maturity only. While, keeping in mind the need for Senior Citizens, GOI Bonds offer liquidity in terms of Pre-maturity withdrawal options for any Senior Citizen Depositor in these Bonds, as per Applicable terms & conditions i.e. Lock-in period for investors at the age of 80 years and above shall be 4 years from the date of issue and after 4 years, Investor can apply for the Pre-maturity with applicable minimum deduction charges. Similarly, Lock-in for Investors in the age bracket of 70-80 years shall be 5 years and for 60-70 years shall be 6 years from the date of issue.
In the case of joint holders or more than two holders of the Bond, the above lock-in period will be applicable even if any one of the holders fulfil the above conditions of eligibility.
Should you invest?
In comparison to other fixed-income investment avenues such as fixed deposits, National Savings Certificate (NSC) or Kisan Vikas Patra (KVP), interest rates of the GoI 7.75 per cent (taxable) Bonds are still better. However, returns from these investment avenues are taxable. The Bonds are suitable for investors who are not falling under tax liability or who have an exemption under the Income Tax Act. Those who are having a conservative approach in investing can also include GOI 7.75 per cent Bonds in their portfolio since the Bonds are Sovereign and guaranteed for repayment by Reserve Bank of India.
For Trusts & Institutions, there are other fixed investment options such as AAA-rated Fixed Deposit schemes offered by renowned Non-Banking Financial Companies and Housing Finance Companies. Also, Trusts can invest in various bonds through the Secondary Market.
(The author is VP & Product Head Investments, Bajaj Capital)