Better than a fixed deposit? RBI Floating Rate Savings Bonds offer 8.05% interest. Key points

Amid falling interest rates, many FD investors are looking for alternatives. If you are also one of them, you may consider RBI Floating Rate Savings Bonds (FRSB) 2020. This article explains key points you should know about these bonds.

FRSB 2020 can serve as an alternative to bank deposits while also offering slightly higher returns. However, one should invest in these bonds only after knowing the key details.

The most important detail that you must consider before investing is that anything you invest in these bonds will be locked in for 7 years. The RBI allows premature encashment from these bonds only to elderly investors. As such, investors aged 80 years and above can make premature encashment after 4 years, while those aged between 70-80 years and 60-70 years can do so after five and six years, respectively.

In case of joint holdings, one of the investors should meet the criteria for premature encashment. Please note that partial premature encasement from FRSB 2020 is not allowed.

FRSB 2020 is an interest-bearing, non-tradable bond. The amount you invest in these bonds is repaid after the completion of seven years from the date of issue. However, the income earned from investment in these bonds is taxable at the individual slab rate.

These bonds were first issued by the Government of India through a notification dated June 26, 2020. And, the operational guidelines for these bonds have been issued by the RBI from time to time.

How is it different from other bonds?

Generally, bonds have fixed coupon rates. But FRSB 2020 has a floating rate of interest, which is paid on a half-yearly basis.

For example, if you have invested ₹1 lakh in these bonds and the interest rate is ₹8.05% per annum, then the half-yearly payout will be around ₹4,025. The interest earned is also taxable.

How to invest?

Interested investors can subscribe to FRSB 2020 on RBI's Retail Direct portal on all working days, excluding non-working Saturdays, Sundays, and Public Holidays under the Negotiable Instrument Act 1881 for the State of Maharashtra.

You can also buy these bonds online through a bank's website or offline by visiting its branch.

Any person residing in India can invest in FRSB 2020. Investing jointly in these bonds is also allowed by the RBI. However, NRIs cannot invest in these bonds. In case a resident becomes an NRI during the currency of the bond, then he can continue to hold the bond, but the repatriability of interest/maturity proceeds will be subject to FEMA guidelines.

Resident individuals are allowed to invest any amount in these bonds, starting from ₹1,000.

FRSB 2020 interest rates

The interest rates of these bonds are reset semiannually, usually on July 1 and January 1. The interest rate of FRSB 2020 is 35 bps over the prevailing National Savings Certificate (NSC) interest rate. Currently, the NSC interest rate is 7.7%; hence, the FRSB interest rate is 8.05%.