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It has been observed that interest rates on deposits of public sector banks (PSB) have declined drastically over the past couple of years. Most Of these bank have interest rate of 7% . Compared to this, RBI’s bonds is giving the interest rate of 7.75% not for one or two years but for tenure of seven years.
These bonds are popularly known as RBI (Reserve Bank of India) or GOI (Government of India) bonds and are available throughout the year through nationalised banks including few private sector banks such as Axis, ICICI and HDFC banks etc. The interest @7.75% will be payable half yearly. There is a cumulative option too. An investor will be paid a maturity value of ₹1703 for ₹1000 investment.
There is an minimum investment limit of ₹1000 and there is no upper limit. These bonds are issued in demat form. There is one drawback that investments in this bond don’t get any tax benefits . The interest paid is clubbed with the income of the investor and taxed at the slab rate applicable to taxpayer. There is an provision of Tax deducted at source (TDS) for non-cumulative RBI bonds. However, the bonds will be exempt from Wealth-Tax under the Wealth-Tax Act, 1957.
Other than tax , another drawback of these bonds is their poor liquidity. They cannot be traded, nor can be transferred. You cannot offer these bonds as collaterals for any loan. However, there is a provision for early redemption for senior citizens but subject to conditions. Depending on your investment plan , you can redeem these bonds within 6,5 or 4 years from the date of issue.
Now, let’s check out the eligibility: You can invest in this option if you are :
- An Individual, not being a Non Resident Indian
- In his or her individual capacity or
- In individual capacity on joint basis or
- In individual capacity on anyone or survivor basis or
- On behalf of a minor as father/mother/legal guardian
- A Hindu Undivided Family