Benefits of Investing in RBI Bonds

Save & Invest

What Are RBI Bonds?

On July 1, 2020, the government of India announced a new scheme called the Floating Rate Savings Bond. This scheme is taxable and open to the residents of the country and HUF or Hindu Undivided Family.

What exactly is this Floating Rates Savings Bond? It is a debt instrument issued by the government whose rate of return fluctuates from time to time. As mentioned by the RBI, the interest rates would be reset every six months.

The bond has no monetary ceiling. The first set was made available on January 1, 2021. The bonds were issued in electronic form. One could apply for the bonds via a physical or electronic medium.

Features of FRSB:

  • The income derived from the scheme is taxable
  • Issue price: Rs. 100
  • Minimum amount to be invested is Rs. 1000, with no monetary ceiling
  • The maturity of the bond is 7 years from the date of issuance
  • The bonds cannot be traded in the secondary market
  • Bonds are issued in Demat (Bond Ledger Account) only
  • The purchase of these bonds is available through designated branches of the State Bank of India, Nationalized Banks, IDBI Bank, Axis Bank, HDFC Bank, and ICICI Bank
  • The ownership is non-transferable (except in the case of the death of the original holder, in which case the ownership gets transferred to the nominee)
  • These bonds cannot be used as collateral for loans

How much is the interest rate?

The interest rate is floating. This means that the bond does not guarantee a fixed interest rate for the entire maturity period of the investment. It keeps changing.

The interest rate when the scheme was introduced was 7.15%. The interest is payable semi-annually, i.e., one payment on 1st January and the other on 1st July. The interest rate is reset every six months.

The interest cannot be paid on a cumulative basis. The interest rate on these bonds is linked to the National Savings Certificate. This means that any fluctuation in the NSC rate will have a direct impact on the FRSB.

The interest will be taxed, and TDS will also apply to income earned on interest.

What are the benefits of investing in RBI bonds?

The following are the benefits availed while investing in RBI bonds:

  • One of the biggest benefits of investing in RBI bonds is security. It is a government-backed scheme, so there is no credit risk involved. The investment has high credit quality. You do not have to worry about the safety of your money.
  • As compared to other schemes like Fixed Deposits or post office schemes, the interest rate is quite high. This ensures better returns.
  • There is no monetary ceiling. This means you can invest whatever amount you feel okay with. This is a good thing for those conservative investors who want to invest huge sums but are concerned about safety or risk.
  • If you have a fixed source of income, this investment is a haven for you.
  • Even though the lock-in period is long, it serves as a long-term investment.
  • This investment is very safe for senior citizens as it is credit-safe and the rate of interest is high.
  • Those who have surplus liquidity at hand can safely put away the amount in this scheme and earn interest. 
  • The bonds cannot be traded on secondary markets. So it ensures a sense of stability.
  • These bonds cannot be used as collateral against any loans. This further ensures their safety.
  • As a long-term investment, the amount gets locked. So it is therefore the best option for those wanting to securely put money away for goals like their children’s higher education, marriage, retirement, etc.


The following are the drawbacks of investing in this scheme:

  • There is no liquidity
  • The amount gets locked in for a significant duration. Seven years may seem like quite a long time for some people. In addition, if one needs to withdraw the money in an emergency, they must pay a penalty for doing so before the maturity date.
  • The floating interest rate depends on the RBI’s policies.


If you are someone who wants to safely put aside some amount for long-term investment but is scared of the risks that investments like mutual funds or stock markets offer, this is the best scheme to invest in. It is the best option for those seeking safe and risk-free investments, with good returns and credit quality. To know more, connect with the financial experts at Piramal Finance