The Reserve Bank of India has announced the interest rates for its Floating Rate Savings Bonds for July-December 2024. The rates came into effect from 1 July 2024.
RBI Floating Rate Savings Bond interest rate
The RBI Floating Rate Savings Bond will offer an interest rate of 8.05% from July to December 2024.
“In terms of Para 13 (ii) of Government of India Notification F.No.4(10)-B(W&M)/2020 dated June 26, 2020 on Floating Rate Savings Bonds, 2020 (Taxable)-FRSB 2020 (T), the coupon/interest rate of the bond would be reset half yearly, starting with January 01, 2021 and the coupon/interest rate will be set at a spread of (+) 35 bps over the prevailing National Savings Certificate (NSC) rate. Accordingly, the coupon rate on FRSB 2020 (T) for the period July 01, 2024, to December 31, 2024, and payable on January 1, 2025, remains at 8.05% (7.70%+0.35%), unchanged from the previous half-year,” the RBI said in a release.
What are RBI Floating Rate Savings Bonds?
The RBI Floating Rate Savings Bonds are fixed-income bonds available to retail investors from the Reserve Bank of India. These bonds, known as Floating Rate Savings Bonds (FRSBs), are issued by the central government, are non-tradeable, and have a lock-in period of 7 years. RBI Floating Rate Savings Bonds provide an additional 0.35% spread over the prevailing national savings certificate rate. The FRS bonds 2020 were launched on July 1st, 2020.
The benefit of investing in RBI's floating rate savings bonds
Edul Patel, CEO of Mudrex, says,"RBI's Floating Rate Savings Bonds can be a prudent choice for investors seeking stability and periodic income. These bonds offer a government-backed investment with a floating interest rate linked to the National Savings Certificate rate, ensuring returns adjust with market trends. They provide bi-annual interest payments, enhancing cash flow for investors. These also yield higher returns when compared to a bank's fixed deposit. Moreover, they offer a safer alternative to equities and other volatile investments, with no risk of principal loss."
However, these come with a seven-year lock-in period and are taxable. They are ideal for risk-averse individuals. These bonds combine the security of a sovereign guarantee with the benefit of inflation-responsive returns," said Edul Patel, CEO of Mudrex.
Siddharth Maurya, Founder & Managing Director of Vibhavangal Anukulakara Pvt. Ltd., pointed out, "Despite the seven-year lock-in period, which may seem restrictive, it encourages disciplined saving and can be beneficial for retirement planning. Most banks also facilitate easy investment processes. The availability of these bonds to non-resident Indians allows many investors to diversify their portfolios with a secure, government-backed instrument."
Ashish Aggarwal, Director at Acube Ventures, highlighted, "The fact that these bonds are non-tradeable and non-transferable prevents investors from the temptation of premature liquidation, fostering a long-term investment perspective. Another appealing feature is that while the interest is taxable, the principal investment qualifies for benefits under Sec 80C. These bonds thus provide a means to park funds without compromising potential returns, particularly amidst market volatility concerns."
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
FAQs
These bonds offer a government-backed investment with a floating interest rate linked to the National Savings Certificate rate, ensuring returns adjust with market trends. They provide bi-annual interest payments, enhancing cash flow for investors.
Is it good to invest in RBI floating rate bonds? ›
If you want to invest in a debt instrument now that offers more than an 8% interest rate, RBI Floating Rate Savings Bonds 2020 (Taxable) could be one of the options. For the July-December period of 2024, RBI Floating Rate Savings Bonds offer an attractive interest rate of 8.05%.
Who benefits from floating rate bonds? ›
Safe Investments: Investors looking to safeguard their investments, yet looking to get a high return of interest can buy government-issued floating rate bonds. These types of bonds have government instruments such as repo rates as their benchmarks and are safer as there is no credit risk.
Are floating rate bonds a good investment? ›
In addition to higher yields, investment grade floating rate securities offer the potential for effective diversification with less duration risk than their fixed-rate counterparts.
Why issue floating rate bonds? ›
Bond ETFs with floating interest rates can help investors seek capital preservation, boost current income, reduce interest rate risk, and diversify short-term bond holdings. Floating rate ETFs may offer exposure to U.S. government bonds, corporate bonds, securitized assets and bank loans.
Can NRI invest in RBI floating rate bonds? ›
NRIs can open an RBI retail direct account to invest in government securities (G-Secs), state development loans (SDLs), and treasury bills (T-bills). However, NRIs will not be able to invest in sovereign gold bonds (SGBs) and floating rate bonds through this avenue.
What are the disadvantages of floating rate savings bonds? ›
Disadvantages of FRSB
- There is no tax benefit and the interest earned is taxable; TDS is deducted when the interest is paid out.
- They have a lock-in period of 7 years;
- They are non-tradable and non-transferable;
As with any bond, FRNs are susceptible to default risk, which occurs when the company or government can't pay back the principal or original amount that was paid by the investor. Since floaters have variable rates, they tend to have unpredictable coupon payments. A coupon payment is the interest payment for a bond.
Why would you want a floating interest rate? ›
Floating rates are more likely to be less expensive borrowing in the case of a long-term loan, such as a 30-year mortgage, because lenders require higher fixed rates for longer-term loans, due to the inability to accurately forecast economic conditions over such a long period of time.
What happens to floating rate bonds when rates drop? ›
A floating-rate security tends to keep its value if rates rise whereas a fixed-rate bond will lose value. That's because an existing bond with a fixed rate is worth less if investors can buy new bonds at higher rates. If rates drop, the opposite occurs--the existing fixed-rate bond will increase in value.
The primary drawback is the inherent unpredictability of floating rates. Their constant changes can make it challenging to forecast future loan costs. Frequent fluctuations in floating interest rates can complicate financial planning and lead to unexpected increases in your monthly payments.
How long do floating rate savings bonds last? ›
What is the tenure of the Floating Rate Savings Bonds (Taxable)? The tenure of the bond is 7 years from the date of issue. No interest will accrue after the maturity of the bond. Premature redemption facility is allowed for investors in the age group of 60 years and above as per RBI's Notification.
Are floating rate bonds taxable? ›
The interest income earned from these bonds is taxable. TDS (Tax Deducted at Source) is deducted at the time of interest payment in accordance with IT regulations.
How to invest in RBI floating rate bonds? ›
You can now invest in Floating Rate Savings Bonds, 2020 through Netbanking. Note: Investments via Netbanking are only available for Singly Held Savings Accounts.
Why do banks prefer floating rates? ›
A significant benefit of floating rate is the fact that it is cheaper than a fixed interest rate. In most cases, there is a considerable difference between a Home Loan taken on a fixed rate and the same loan taken on a floating rate from the same lender.
What is the duration of a floating rate bond? ›
Floating Rate Notes (FRNs) are relatively short-term investments that: mature in two years. pay interest four times each year. have an interest rate that may change or "float" over time.
What is the return of RBI floating rate savings bond? ›
From July-December 2024, the RBI Floating Rate Savings Bonds will fetch an interest rate of 8.05%. The interest rate of the RBI Floating Rate Savings Bonds is linked to the interest rate of the National Savings Certificate (NSC), a small savings scheme backed by the Union government.
What is the maturity of RBI floating rate bond? ›
RBI Floating Rate Bond Lock-in Period
The bond has a lock-in period of 7 years starting from the issue date, and no interest is earned after it matures. Instead, interest is paid half-yearly on 1st January and 1st July of every year. Investors aged 60 and above can redeem the bond early according to RBI's regulations.
Is floating rate fund good? ›
Floating rate funds offer varying levels of risk across the credit quality spectrum with high yield, lower credit quality investments carrying considerably higher risks. However, along with the higher risk comes the potential for higher returns.
