There is a downward slope visible in the interest rates offered on banks in Fixed Deposits. Also, the interest rates on the other small savings schemes are not very attractive. There is a non availability of tax free bond issues also these days. Thus, the small investors are on the lookout for fixed income products, which provides better fixed rate of return.
For last few years the savings bonds, which are a taxable instrument is one of the most preferred investment option by senior citizens, retirees as well as for people who are looking for some source of fixed income.
The savings bonds are being issued by the Government of India, since April, 2003. An estimate is that near 1500 to 2000 crores of investment is done by the people every month, in these savings bonds. These bonds are also known as GOI bonds or the RBI bonds. There was a fixed rate of interest on these bonds, which was equal to 8 %. As per the latest decision of the central government this rate of interest of 8% is now replaced with 7.75 %. This change will be effective from 10th Jan, 2018.
Features of Govt Savings Bond Scheme
Some of the inherent features of government savings bond schemes are mentioned below:
- Maturity Period: 7 years -Lock-in period
- Rate of Interest: 7.75% Annually (Taxable)
- Risk Attached: Very Low Risk
- Minimum Investment 1,000/- INR
- Maximum Investment Unlimited and in multiple of 1000 INR
- Collateral or Loan Facility Available
- Overall Liquidity These are Non Tradable in the Stock Exchanges
- Issue date of Bond Certificate Realization Date of the funds
The bonds are issued by whom?
These bonds are issued by the Government of India to the individuals
Who all can buy the “RBI Savings Bonds”?
All the individuals, who are not a Non-Resident Indian, can buy these bonds:
(a) In his / her individual capacity, or
(b) In the individual capacity on the joint basis, or
(c) In the individual capacity on anyone / survivor basis, or
(d) On the behalf of a minor as father or mother or legal guardian
Process of buying the Govt Savings Bonds
The person willing to buy these bonds can buy from State bank of India as well as other nationalized banks. These bonds can also be bought from some private sector banks like HDFC bank or the ICICI bank. These bonds can be bought from the Stock Holding Corporation of India as well.
Interest payment options
These bonds are issued in the forms of cumulative as well as non cumulative forms. The investor can choose out of two options. The bond will provide an interest rate of 7.76 % every year. For the non cumulative type of bonds, the interest is compounded every half year and is then payable on the maturity in addition to the principal.
The interest of the bond is taxable as per the tax slab of the income. The tax benefits are not available on the invested amount also. The TDS (Tax deducted at Source) will also be applicable if the interest per year is more than 5000 INR.
The premature withdrawal is only available to the eligible investors in the age bracket of 80 Years and above 80 years, between the age of 70 to 80 and between age of 60 to 770 as 4, 5 and 6 years respectively.
Thus, we have seen that this government bond scheme is a good option for the investors, who want to earn a fixed return of decent amount. The present rate of interest for this scheme is 7.75 %, which is substantially higher than the other options available.