RBI Floating Rate Savings Bonds
RBI Floating Rate Savings Bonds are central government-backed bonds with a maturity and lock-in period of 7 years. These bonds currently yield around 8.05% linked to the National Savings Certificate (NSC) rate with a spread of 0.35%. Senior citizens can invest in RBI bonds through the RBI Retail Direct portal by opening a Bond Ledger Account. Alternatively, investors can visit designated branches of SBI, 4 private sector banks and 11 nationalised banks for the offline process of investing in RBI Floating Rate Savings Bond.
Why Senior Citizens Should Invest
Government Backed Investment
- These bonds carry a sovereign guarantee as issued by the RBI on behalf of the Government of India.
- The credit risk is low, making it suitable for retirees or senior citizens prioritizing capital protection.
Premature Withdrawal for Senior Citizens
- Age 60–70 years: Withdrawal is allowed after 6 years from the date of issue
- Age 70–80 years: Withdrawal is allowed after 5 years from the date of issue.
- Age 80 years & above: Withdrawal is allowed after 4 years from the date of issue.
Floating Rate Protects Against Interest Rate Changes
- The interest rate resets every January and July and is paid twice a year.
- The return on RBI bonds increases with a rise in interest rate, protecting investors from interest-rate risk.
Features
- Resident Indians and Hindu Undivided Families (HUFs) are eligible to invest in RBI FRSB Bonds.
- The minimum subscription amount is Rs 1,000.
- The interest is paid semi-annually. It is calculated as 7.70% (NSE rate) + 0.35% (spread).
- The coupon is reset every 1 January and 1 July.
- These bonds are not traded on stock exchanges and hence are not transferable.
AAA-Rated Corporate Bonds
Corporate bonds can be a great investment for investors seeking higher returns than FDs without stock market volatility. Senior citizens can invest in AAA rated corporate bonds, as they are highly rated bonds issued by PSUs and strong financial companies. Their highest credit rating indicates minimal default risk in terms of timely repayment of debt. Senior citizens can buy bonds directly from the issuer during the initial offer period, or once a bond is listed, investors can buy that bond directly from its existing investors in NSE/BSE, at its market price.
Alternatively, senior citizen investors can also buy AAA rated bonds from the Paisabazaar app or website with a minimum investment of Rs 1,000. Investors can earn returns of up to 13.25% p.a.
Why Senior Citizens Should Invest
- Low Risk Bonds: AAA rated corporate bonds are low risk bonds issued by PSUs and strong financial companies, providing maximum safety for capital protection.
- Steady Income Flow: The pre-determined dates of coupon and maturity payments can help senior citizens align their cash inflows from bonds with their financial goals.
- Higher Liquidity: AAA-rated bonds are usually easy to buy and sell in the secondary market due to the high assurance of receiving money back.
Features
- Corporate bonds can be fixed or floating interest rates. In fixed rate bonds , investors get periodic interest payments as per the interest rate fixed at the time of bond issuance. A floating rate bond has its interest rate linked to a benchmark like government bond yields or the Mumbai Interbank Offered Rate (MIBOR), etc.
- Senior citizens can hold bonds until maturity and receive the full face value. They also have the option to sell their bonds before the maturity date in the secondary market.
- Some bonds are callable bonds , allowing issuers the right to exercise buybacks from their existing bond holders before their maturity period and some are puttable bonds , allowing investors to sell back their bonds before their maturity period on pre-determined dates.
- These bonds are subject to credit risk (default), inflation risk, interest rate risk, and liquidity risk, depending on the type of bond.
Tax-Free Bonds
Tax-free Bonds, as the name suggests, is a type of bond wherein the interest payouts are exempt from income tax calculation under Section 10 of the Income Tax Act. These bonds usually make coupon payments to their investors at half-yearly or annual intervals. It is issued to finance infrastructure or other capital intensive projects.
Why Senior Citizens Should Invest
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- These bonds are usually issued by government agencies and select public sector enterprises and therefore, the chances of default is almost nil.
- National Highways Authority of India (NHAI), Indian Railways Finance Corporation (IRFC), National Bank for Agriculture and Rural Development (NABARD), Housing and Urban Development Corporation (HUDCO), Rural Electrification Corporation Limited (REC), etc., are select entities authorised to issue tax-free bonds. These agencies usually have higher bond credit ratings , such as AAA, indicating low default or credit risk.
- Tax Free Income: The interest income earned from tax free bonds is exempt from income tax. This helps senior citizen investors in higher tax brackets to maximise post returns.
- Liquidity: Tax-free bonds are listed on stock exchanges. This allows senior citizens to sell in NSE or BSE if they wish to redeem before maturity.
Features
- Retail individual investors, High networth individuals (investing more than Rs 10 lakhs during the bond issuance), Qualified Institutional Buyers (QIBs), corporates including companies, trusts, partnership firms, limited liability partnerships, societies, etc., are eligible to invest in bonds .
- Tax-free bonds are issued with long maturity periods of 10, 15, or 20 years.
- The issuers have to take into consideration Government Security (G-Sec) reference rates while fixing their coupon rates.
- The bonds are usually backed by the assets (collateral) of the issuing entity. In case of a liquidation or default by the issuer, the pledged assets can be used to make repayments to the investors.
