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All about RBI Bonds

09 Dec 2022 0 COMMENT

Bonds are fixed income security which allows a lender to lend a pre-determined amount of funds and be eligible for interest on those bonds.

This article shall make you aware of the safest investment option available in the market. At this juncture, where the uncertainty in the equity market continues to persist, the investors are looking to park their funds at a place where they would get decent returns and the capital is not affected.

Many of you would like to invest in a place where your capital is secured and the capital risk is not involved; that is zero capital risk.

Yes, it’s the RBI’s Floating Rate Savings Bonds RBI bonds are a safe and easy way to invest in India's economy.

In this article, you will come across the following:

  • What are RBI bonds?
  • What are the features of RBI bonds?

What are RBI bonds?

RBI bonds, as the name suggests, are issued by the Reserve Bank of India. The interest is payable semi-annually on 1st January and 1st July. The bonds are issued at the rate of 7.15% per annum. The RBI shall intimate any change in the interest rate. The cumulative option is not available. The bonds can be invested by any individual, along with seniors and minors.

Simply saying, it is a kind of savings bond offered by the Reserve Bank of India. They are similar to other types of savings bonds but offer a higher interest rate. It is an ideal way to save money and earn interest on your investment.

What is the minimum investment?

The bonds can be invested throughout the year. The interest is applicable from the day of the debit of funds from your bank account. You can invest with as less as Rs. 1000 in this bond, and there is no maximum limit for investing.

What is the eligibility to invest in the bonds?

In order to be eligible for investment, you must be an Indian citizen. You can invest in single mode or joint mode, and also you can invest in the name of a minor. The minor’s account can be operated by the parents.

The Non-Residential Indian (NRI) is not eligible to invest in the Reserve Bank of India (RBI) bonds.

What are the documents required to invest in RBI Bonds?

Document requirement for individual investors:

  • Duly filled application form. You can easily find the form on the bank or RBI’s website.
  • A copy of your PAN Card.
  • A copy of any address proof like an Aadhar Card or Passport.
  • A cancelled cheque of the Bank Account you want your interest earnings and maturity amount to be credited.

Document requirement for minors:

  • Duly filled application form. The form can be signed by the guardian.
  • A copy of the PAN Card of the minor/ guardian.
  • A copy of the address proof of the minor/guardian.
  • A copy of the minor’s birth certificate. It should be attested by the guardian. 
  • Cancelled cheque of the bank account you want the Bond’s interest earnings and maturity amount to be credited to.
  • In case of Power of Attorney (POA), the original POA document needs to be verified by the bank.

Document requirement for Hindu Undivided Family (HUF):

  • Duly filled application form. The form is typically filled in the name of Karta, the eldest male member of the family.
  • A copy of HUF’s PAN Card.
  • A copy of HUF’s address proof.
  • Cancelled cheque of the Bank Account you wish the interest gains and the maturity value to be credited to.
  • List of coparceners in the HUF with their signatures attested by Karta.

Check the document's accuracy before submitting it to the bank. All documents need to be self-attested by the applicant.

Lock-in Period for the bonds

The bonds get locked in for seven years from the date of issuance. You cannot withdraw before seven years if you are an individual.

In the case of senior citizens, free encashment is eligible. Early encashment is available for people belonging to the age group of 80 and above. The minimum lock-in period for them is four years. The lock minimum lock-in period is five years for people belonging to the age group of 70 years and above. For people aged between 60 years and above, the minimum lock-in period is six years.

However, early encashment will attract a penalty which will be 50% of the last six months interest.

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RBI Bonds complete details | How & Where to buy RBI Bonds

Bonds holding mode

The bonds will be held in electronic form. A bond laser account will be opened with the RBI of the applicant. A physical certificate will also be dispatched to you for the same.

Taxability

Bonds are purely taxable under the Income Tax Act 1961. There is no tax benefit in the bonds. Whatever interest you earn from the bonds, you have to show the interest income while filing your returns and your income will be taxable as per your tax lab.

Transferability liquidity and loans

Transferability of the bonds is not possible. You cannot keep the bonds as collateral and neither can you encash the bonds before seven years. So, the bonds are non transferable and cannot be traded in the secondary market.

Bonds transfer is possible only in case of death of the bond holder that too, to the nominee only.

Hence, always ensure to put nominee in the investments.

Nomination

Nomination for one or more is allowed. You can put the ratio as per your requirements.

Conclusion

In conclusion, RBI bonds are a type of government-issued bond in India that offers investors a fixed rate of interest. RBI bonds are a safe and secure investment option for those looking for stability and modest returns. The low risk makes it an attractive choice for many investors.

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.