RBI floating rate savings bonds: Why investors should bet on these?

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.