Popularly known as RBI Bonds or GOI bonds, they suit anyone looking for highest safety of principal and a regular income.
At a time when the interest rate on bank fixed deposits (FD) are coming down, one other investment option almost similar to bank FD that investors may consider is the 7.75 per cent Savings (Taxable) Bonds, 2018. Currently, most banks are offering 6.25 per cent to 6.50 per cent for a deposit with a tenure of 7 years. The Savings Taxable bonds issued by the government for retail investors can emerge as an investment with a higher rate of interest. Popularly known as RBI Bonds or GOI bonds, they suit anyone looking for highest safety of principal and a regular income. NRIs, however, are not eligible for making investments in these Bonds.
Here are five things to know about the RBI Bonds.
1. Interest rate
The rate of interest of the bond is 7.75 per cent per annum and the frequency of interest payment is either half-yearly or cumulative. Under the cumulative option, the interest will be paid only on maturity. For every Rs 1000 (face value) of the bond, the maturity value is Rs 1703.
The bonds have a fixed tenure of seven and Interest on cumulative bonds will be compounded with half-yearly rests and will be payable on maturity along with the principal.
3. Taxation of interest
Interest is fully taxable as is the case of interest from bank fixed deposits.
4. Premature surrender
Premature encashment in respect of the Bonds is only allowed for individual investors who are 60 years and above.
The early surrender will be subject to a minimum lock-in period from the date of issue as indicated below:
a. Lock-in period for investors in the age bracket of 60 to 70 years shall be 6 years from the date of issue.
b. Lock-in period for investors in the age bracket of 70 to 80 years shall be 5 years from the date of issue.
c. Lock-in period for investors in the age of 80 years and above shall be 4 years from the date of issue.
In 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 fulfils the above conditions of eligibility.
Even after the minimum lock-in period ends, the surrender of the bonds can be done only after the 12th, 10th and 8th half-year corresponding to the respective lock-in period. Also, the redemption payment will be made only on the following interest payment due date. Thus, the effective date of premature encashment for eligible investors will be 1st August and 1st February every year. However, 50 per cent of interest due and payable for the last six months of the holding period will be recovered, both in respect of Cumulative and Non-cumulative bonds.
5. Transfer of bonds
The Bonds are not transferable. And, the Bonds are not even tradeable in the Secondary market and are not eligible as collateral for loans from banking institutions, non-banking financial companies or financial institutions.