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Government Of India Bonds

The Government will launch Floating Rate Savings Bonds 2020 (Taxable) scheme with an interest rate of 7.15 percent from July 1, 2020. As per RBI, its interest rates would be reset every six months. The launch of the bonds was announced after the withdrawal of Taxable Bonds, offering a fixed interest rate of 7.75 percent, on May 28, 2020. 

In this blog, we will look at the features of the newly launched Floating Rate Savings Bonds 2020 in detail and whether you should invest in them.

But, first, let’s understand what Floating Rate Savings Bonds are? 

To simply put it, Floating Rate Savings Bonds 2020 are debt instruments issued by the government whose rate of return fluctuates from time to time. The interest rates for these bonds change as per its benchmark rate. 

Now, let’s look at the features of Floating Rate Savings Bonds 2020 in further detail

1. Interest rates for Floating Rate Savings Bonds 2020 will change every six months

For the newly launched Floating Rate Savings Bonds 2020, the interest amount is payable every six months and after which the interest rate would be reset. Its first interest rate reset would happen on January 1, 2021. 

2. The interest rate for these bonds would be 35 basis point over and above NSC rates

The change in the interest rate is pegged with the prevailing National Saving Certificate (NSC) rate. That is, the rates would be adjusted as 35 basis points over the prevailing NSC rate.

For example, the prevailing NSC rate is 6.8 percent. Now adding another 35 basis points to the NSC rate, i.e. 6.8% + .35% = 7.15%, the interest rate for the Floating Rate Savings Bonds 2020 (payable on January 1, 2021) was decided. Similarly, the new rates would be reset on Jan 1, 2021 depending upon the then NSC rate. 

3. Only Indians residents can buy these bonds

Any resident Indian can invest in this bond. NRIs are not eligible for making investments in Floating Rate Savings Bonds 2020. 

4. The lock-in period for these bonds is seven year, with exceptions for senior citizens

The tenure for these bonds is seven years. And early redemption is allowed only for senior citizens in specific cases. That is, investors between the age of 60 and 70 can encash the bond prematurely after completion of six years. Meanwhile, investors in the age bracket of 70 to 80 can do the same after completing five years, and it is four years for investors above 80. 

5. Floating Rate Saving Bonds 2020 are taxable

Return from your investments in Floating Rate Savings Bonds 2020 will be added to your income and taxed as per your tax slab. 

6. These bonds are not tradable, but transferable to the nominee

The bondholder/holders can make a nomination for the bond. The bond will be automatically transferred to the nominee/nominees upon his/her/their death. Meanwhile, it cannot be traded in the market or used as collateral for a loan. 

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