Table of Contents
- Blog Introduction
- What is Floating Rate Savings Bonds?
- History Of Floating Rate Savings Bonds
- How Does FRSB Work?
- Features of Floating Rate Savings Bonds
- Income Tax Benefits
- Who Can Purchase This Bond?
- Where Can You Purchase The Bond?
- How Do You Purchase The Bond?
- Deposit Limits in Floating Rate Savings Bonds
- Floating Rate Savings Bonds Maturity Period
- Interest Rate (Coupon Rate) %
- Interest Credit Method
- Pre-Mature Closure
- In case of Death During The Term?
- Bond Transfer & Tradability
- FAQ About Floating Rate Savings Bonds
- Open Your Demat and Trading account with Zero Cost
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In this blog post I will be explaining my analysis on Floating Rate Savings Bonds. This will be a complete guide on Floating Rate Savings Bonds. Please read till end of the blog post to know the complete information about this Floating Rate Savings Bonds. Lets get started.
What is Floating Rate Savings Bonds?
The Floating Rate Savings Bonds is a type of Bond in which the interest rate (coupon rate) will be revised by the Government every 6 months. So, the interest (coupon) amount you receive will also change every 6 months. Because of this reason, this bond got the name “Floating Rate”. This floating interest rate (coupon rate) is applicable for both old and new investors.
There is no cumulative (compounding) option in this bond. It means that the interest will not compound in this scheme. Only the interest payout option is available. So, you have to receive the interest every 6 months.
History Of Floating Rate Savings Bonds
Floating Rate Savings Bonds, 2020 was launched by the Government of India and it has been effective since 01-July-2020. Earlier, there was a bond called “RBI 7.75% Savings Bonds”. The Government has stopped issuing this bond on 28-May-2020. Instead, it came up with a new bond called Floating Rate Savings Bonds.
How Does FRSB Work?
- Deposit a lump sum amount and purchase the bond.
- You’ll receive the interest (coupon) amount every 6 months for the period of 7 years as per the floating interest rate (%) applicable from time to time.
- At the end of 7 years, you’ll get your deposit amount back.
Features of Floating Rate Savings Bonds
- Backed by the Government of India.
- Safe investment option.
- Guaranteed returns (but returns may vary due to floating interest rate).
- Regular half-yearly income.
- No maximum limit on the deposit amount.
- People of all the age groups can invest.
- Nomination facility.
Income Tax Benefits
- No income tax benefits.
- No tax deduction benefits for the deposit amount under Section 80C of Income Tax Act.
- TDS (Tax Deducted at Source) is applicable. TDS will be deducted if the interest (coupon) earned from the Bond is more than Rs. 10,000 in a financial year.
- If you want to avoid TDS, then you’ll have to get the Exemption Certificate from the Income Tax department. Note that submitting self-declaration forms such as Form 15G or 15H won’t help to avoid TDS.
- The interest (coupon) amount received is taxable. During tax returns, you need to declare the interest income under “Income from Other Sources” and pay the income tax as per your income tax slab.
- Capital Gains Tax (CGT) is not applicable for this bond as you can’t sell them on the Secondary market (Share market).
Who Can Purchase This Bond?
FRSB can be purchased by
- Resident Indians
- Hindu Undivided Family (HUF)
A resident Indian can purchase this bond
- jointly with others
- on behalf of a minor of whom he is the legal guardian
Where Can You Purchase The Bond?
You can purchase the bond from the following Banks.
- State Bank of India.
- Bank of Baroda (including Vijaya Bank and Dena Bank).
- Bank of India.
- Bank of Maharashtra.
- Canara Bank (including Syndicate Bank).
- Central Bank of India.
- Indian Bank (including Allahabad Bank).
- Indian Overseas Bank.
- Punjab National Bank (including Oriental Bank of Commerce and United Bank of India).
- Punjab & Sind Bank
- Union Bank of India (including Andhra Bank and Corporation Bank).
- UCO Bank.
- HDFC Bank.
- ICICI Bank.
- IDBI Bank.
- Axis Bank.
How Do You Purchase The Bond?
You can purchase the bond using
- Cash (upto Rs. 20,000 only).
- Demand Draft (DD).
When you purchase, the bond will be issued only in Demat form and it’ll be held in an account called Bond Ledger Account (BLA). For the proof of purchase, a “Certificate of Holding” will be given to the investor.
Deposit Limits in Floating Rate Savings Bonds
- The minimum deposit amount is Rs. 1,000.
- There is no limit on the maximum deposit amount. You can deposit as much as you can.
- The deposit amount should be in multiples of Rs. 1,000.
Floating Rate Savings Bonds Maturity Period
The maturity period of this bond is 7 years. At the end of 7 years, the entire deposit amount will be given back to you.
Interest Rate (Coupon Rate) %
- The current annual interest rate (coupon rate) is 7.15% and it is for the 6 months period from 01-Jan-2022 to 30-Jun-2022.
- The interest rate of this bond will be revised every 6 months and it’ll happen on 1st January and 1st July of every year.
- So, the interest (coupon) amount for the 6 months period will be paid on 1st January and 1st July of every year. It means that irrespective of your start date of the bond, you’ll receive the interest only on 1st January and 1st July of every year.
- This floating interest rate (coupon rate) is applicable for both old and new investors. It means that the interest rate is not fixed for anyone. Every investor should go through the interest rate change cycles.
- There is no cumulative (compounding) option available in this bond. It means that the interest amount will not compound in this scheme. Only the interest payout option is available. So, you have to receive the interest every 6 months.
- The revision of the interest rate will be 0.35% more than the interest rate of National Savings Certificate (NSC) scheme.
Interest Credit Method
The half-yearly interest (coupon) amount from the bond will be paid directly to your Savings Bank (SB) account.
Pre-mature closure is allowed only for those whose age is 60 years and above subject to the completion of the minimum lock-in period. The minimum lock-in period varies for each age group as mentioned in the below table.
|Age Group||Minimum Lock-in Period|
|60 to 70 years||6 years from the date of issue|
|70 to 80 years||5 years from the date of issue|
|80 years and above||4 years from the date of issue|
In case of joint account holders of the bond, any one person needs to fulfil the above conditions. After fulfilling the above conditions, the eligible investor can surrender the bond at any time. But, the Government will process the request and pay you the interest (coupon) amount only on the interest payment dates. That is, 1st January and 1st July of every year.
For example, after fulfilling the above conditions, if you surrender the bond in the month of February, you still need to wait till 1st July to receive the final interest (coupon) amount. There will be a penalty for pre-mature closure even after fulfilling the above conditions. The penalty amount is 50% of the last interest (coupon) amount.
In case of Death During The Term?
In case of death during the tenure of the bond, the bond will be transferred to your nominees or legal heirs. The nominee should hold the bond till the early redemption period or till maturity.
Bond Transfer & Tradability
These bonds can’t be transferred to another person. Also, these bonds are not tradable in the secondary market (Share Market). It means that you can’t buy or sell these bonds in the secondary market.
FAQ About Floating Rate Savings Bonds
I am a NRI can I Invest in Floating Rate Savings Bonds?
NRI (Non Resident Indians) are not eligible to purchase this bond. But, if a resident becomes NRI during the tenure of the Bond, then he can continue to hold the bond until maturity.
Is the any Loan facility available in Floating Rate Savings Bonds?
There is no loan facility available in this bond. Also, you can’t use this bond as a collateral security to get loans from the Banks, Financial Institutions or Non-Banking Financial Companies (NBFC).
Is There any Nomination facility available in Floating Rate Savings Bonds?
Nomination facility is available in this bond. You can nominate one or more people as your nominees. Also, you can change nominations at any time during the tenure of the bond.
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