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What are RBI Bonds? : All You Need to Know about their Features

Personal Finance

RBI bonds are bank bonds issued by RBI on behalf of the Government of India. Also known as Government of India Savings (Taxable) Bonds, RBI Bonds are a source of raising funds to complete the projects and plans of the Government of India. Any citizen of India can purchase them.

The Government of India launched the Floating Rate Savings Bonds 2020 (Taxable) on July 1, 2020. These currently offer an interest rate of 7.15 per cent. They were earlier available at 7.75 per cent interest and were popularly known as RBI 7.75 per cent Bonds. The interest rate of the floating rate bonds is reset once every six months by adding 0.35 per cent to the prevailing interest rate of the NSC (National Saving Certificate).

RBI bonds can be purchased through the State Bank of India or any of the following private and nationalised banks:

  • Bank of Baroda
  • Canara Bank
  • Bank of Maharashtra
  • Central Bank of India
  • Indian Overseas Bank
  • Indian Bank
  • Punjab National Bank
  • Punjab and Sind Bank
  • Union Bank of India
  • UCO Bank
  • HDFC Bank
  • IDBI Bank
  • Axis Bank
  • ICICI Bank

They can also be obtained from the Stock Holding Corporation of India Limited. The bonds will be issued only in Demat or electronic form and attached to a bond ledger account that will be opened with the receiving office on behalf of the investor. You get a certificate of holding as proof of subscription.

You can buy bonds of RBI by paying cash (up to INR 20000) or through cheque/demand draft / any other electronic method that the Receiving Office accepts.

Eligibility Criteria to Hold RBI Bonds

  • The investor of RBI Bonds has to be a resident of India.
  • The investor has to be a major who can either invest in their name or on behalf of a minor (as a parent or legal guardian of the child)
  • The investor should pay for the bond in their capacity or jointly.
  • A Hindu Undivided Family could also be an investor in RBI Bond.
  • No NRI or Non-Resident of India is allowed to invest in an RBI bond

Features of RBI Bonds

  • The minimum investment you can make on an RBI Bond is INR 1000. Further investments need to be made in multiples of INR 1000. There is no maximum limit on investment.
  • The tenure of an RBI Bond is seven years from the date of issue, after which it shall be fully repaid. Senior citizens can avail of the special privilege of premature redemption of bonds. However, they need to hold the bonds for four years (if they are 80 years and above), five years (if they are between 70 and 80 years), and six years (if they are between 60 and 70 years). If not, the half-yearly interest immediately preceding the exit will be deducted as a penalty.
  • The interest you earn on the RBI is taxable as per the Income Tax Act of 1961, depending on the relevant tax status of the applicant.
  • The interest on RBI Bonds will be paid in half-yearly intervals on 1st January and 1st July, respectively.
  • RBI Bonds are non-transferrable. However, they get transferred to the nominee / legal heir upon the investor’s death. Nomination can only be made by an individual who is the bond’s sole holder or surviving holder. If the bond is under joint ownership, each registered bondholder will have to file their nominations (as per the Government Securities Act 2006 and Government Securities Regulation 2007, published in Part III, Section 4 of the Gazette of India dated December 1, 2007).
  • RBI Bonds cannot be traded in the securities market. You cannot use them as collateral for availing of any loan.
  • The applicants must provide information about their bank accounts while applying for RBI Bonds. This way, the amount will be transferred to their accounts upon maturity of these RBI bank bonds.
  • The Receiving offices get a brokerage of 0.5 per cent on the amount that they mobilise through RBI floating rate savings bonds. They can share 50 per cent or more of this brokerage with any brokers or sub-brokers who may have tendered their applications.

Advantages of Investing in RBI Bonds

RBI bonds are safe, secure, and risk-free compared to other investment options.  Since the Government of India issues them (through RBI), they can be bought safely by any citizen of India.

They provide higher returns than Fixed Deposit accounts or tax-free bonds and are stronger than many other investment options. These are zero-credit risk bonds, as there is no possibility of default here.

The interest rate of RBI Bonds, commonly termed the Coupon Rate, is the main highlight of this investment option. The interest rate is reset once every six months of these bonds after adding 0.35 per cent to the rate offered by the NSC (National Savings Certificate). The current interest rate of NSCs is 6.80 per cent, so RBI Bonds are issued at 7.15 per cent interest (6.80 + 0.35).

The Conclusion

There are many investment options and bank bonds with varying levels o returns available in India. However, if you are looking for something trustworthy, RBI Bonds could be your best bet. They are safe and risk-free and can also help you get high returns on your investment.

Also, since there is no maximum limit on investment, it makes sense to buy bonds from RBI even if you need to take a personal loan. You can check out the Piramal Website for an easy and quick personal loan.