Partner With Us NRI

Open Free Demat Account Online with ICICIDIRECT

Earn high regular returns with RBI Floating Rate Bond

An astute investor will never keep her money in one place. One safe place to park your money would be government bonds like the Reserve Bank of India's floating rate bond issued in 2020.

What is a floating rate bond?

Government agencies and companies issue bonds when they need a loan. Rather than approach a bank, they collect money from the investors who buy their bonds. In exchange for this capital, the bond issuer pays interest in the form of a coupon. It is the annual interest paid to the bondholder.

Most bonds have a fixed coupon rate which remains unchanged until maturity. But there are also bonds with floating interest rates. When you invest in a floating rate bond, keep in mind that the coupon payment will change periodically. That’s because the coupon rate on these bonds fluctuates based on the interest rate of its benchmark.

Key features of RBI floating rate bonds 2020

As the government's banker, the RBI frequently issues bonds on behalf of the Government of India (GOI). But it can also raise money for its operations. Are you in the market to buy RBI bonds? One option you could consider is the central bank’s 2020 issue of floating rate savings bonds. Here’s what you need to know about this RBI saving bond:

  • The coupon rate and payment: The interest in these RBI bonds is linked to the prevailing interest rate for the National Savings Certificate (NSC). This rate can change every six months. The rate for the RBI saving bond is 35 basis points above the NSC rate. As of 1 January 2021, the NSC rate is 6.8%. So, the rate on the RBI floating rate bond will be 6.8% + 0.35% = 7.15%. The interest is payable every six months and provides a regular income. However, the government could reset the coupon rate after each coupon payment.
  • Lock-in period: These floating-rate savings bonds from the RBI have a lock-in period of seven years. However, there is some relaxation for senior citizens who buy these bonds:
    • Investors aged between 60 and 70 years may encash the bond after six years.
    • Those aged between 70 and 80 years may encash the bond after five years.
    • Those aged above 80 years may encash the bond after four years.


  • Transferable to nominee: Although you cannot trade these bonds on an exchange, you can transfer them to a nominee following the bondholder's death. The transfer process is automatically provided you register the nominee.
  • Tax treatment: The returns on these bonds are taxable. Any gains from these RBI taxable bonds will be taxed as a part of your overall income. The tax rate will depend on the income tax slab that applies to you.

RBI floating rate bonds: Possibility of higher returns

This floating rate bond from the RBI can be a valuable addition to your investment mix. It is a low-risk investment and has the potential to bring higher returns. A look at the benefits of this RBI taxable bond will make things clear.

  • Earn more than with other investment products: The RBI floating rate savings bond has a relatively high-interest rate of 7.15%. When fixed deposit rates at banks have dipped below 6%, the RBI bond brings significantly higher interest earnings. Plus, it will always remain 0.35% more lucrative than its benchmark—the NSC.
  • Possible gains if interest rates rise: Say, you invest in fixed-rate bonds and the interest rate for lending increases. Since your coupon rate remains fixed, your overall estimated returns could decline. A floating-rate bond mitigates this interest rate risk as the coupon rate keeps pace with the changing rates.
  • Zero risks of default: This GOI bond comes with a sovereign guarantee from the Union Government. Your investment is secure, especially compared to corporate bonds.

How to invest in RBI floating-rate bonds

Any resident Indian can buy these RBI floating rate savings bonds. However, the scheme is not available to non-resident Indians (NRIs). You can buy these bonds from ICICI Direct. You can invest online in cash (only up to Rs 20,000) and via demand draft or cheque. You can hold these bonds in the demat form.

Last but not least

Upgrade your bond investments by opening a demat account [LINK] and a trading account with a trusted broker like ICICI Direct. Use their expertise and research to navigate the bond markets. Give your investment plans the necessary boost.

Disclaimer: ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470.  Please note, bonds/NCDs related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism.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.

Most Popular

  • 13 May 2022
  • ICICI Securities

The Five-Point Financial Planning Checklist For Your Family

Whether you just got married or planning to have a baby or have dependents, you should have financial plans for every stage in your life to ensure a secured future for your family members. Here are five things you can do financially for your family.   

  • 12 May 2022
  • ICICI Securities

What is a Zero Coupon Bond?

You get fixed returns in the form of interest until maturity when you invest in a bond. Zero-coupon bonds work a little differently. In this article, find out what zero-coupon bonds are, their advantages and whether you should invest in them. 

  • 12 May 2022
  • ICICI Securities

What are Cross Currency Pairs?

The forex market is the largest financial market globally. Currency trading is a lucrative and booming business. While most currencies trading happens in relation to the US Dollar, some don’t. That forms the basis of cross currency pairs. Here’s what you need to know about it. 

  • 12 May 2022
  • ICICI Securities

Investing principles from Benjamin Graham: The Father of Value Investing

Benjamin Graham was a British born economist, professor, and investor who taught at Columbia University. He was also a mentor to some of the most famous investors of the 20th century, including Irving Khan, John Templeton, & Warren Buffett. Buffett called him "the second most influential figure in his life, only after my father". 

  • 12 May 2022
  • ICICI Securities

How to Invest in Nifty 50?

The Nifty 50 is the benchmark index of the National Stock Exchange. It represents the 50 largest companies listed in India. Investing in the Nifty 50 can be a good idea for those looking to make index-linked returns. Here’s how you can invest in the index. 

  • 12 May 2022
  • ICICI Securities

Investment philosophy of Cathie Wood: The most powerful woman on Wall Street

Catherine Duddy Wood, also called Cathie Wood, is an investor who primarily invests in disruptive technologies and is the founder, chief executive officer, and chief investment officer of ARK Investment Management, LLC, an investment management firm mostly active in the United States.

  • 11 May 2022
  • ICICI Securities

How to Use Technology to Improve Your Finances

Technology has made life simpler for everyone. In the realm of personal finance, technology has streamlined many processes—from budgeting to automating your payments. On National Technology Day, let’s look at how technology has transformed our finances. 

  • 11 May 2022
  • ICICI Securities

How to Invest in your Every Goal with Mutual Funds?

Each of us is unique. We have different needs and goals in life. Some of us can ride along swinging markets, while some may need a relatively conservative investment tool. 

  • 11 May 2022
  • ICICI Securities

Four Reasons Why Entrepreneurs should Invest in Equity Mutual Funds

Equity mutual funds provide growth opportunities not just for individual investors but also for entrepreneurs and corporates. They make excellent investments for anyone looking for wealth creation. This article will give you four reasons why businesspeople should consider investing in equity mutual funds.