Floating Rate Savings Bonds (FRSBs), 2020 (Taxable)

About Floating Rate Savings Bonds (FRSBs), 2020 (Taxable)

• It was introduced by the Government of India on July 1, 2020. 
• FRSBs are interest-bearing, non-tradeable bonds issued by the Government of India, which are repayable on the expiration of seven years from the date of issue.
• Eligibility: The bonds may be held by
  • A person resident in India, in her or his individual capacity, or in individual capacity on a joint basis, or in individual capacity on any one or survivor basis, or on behalf of a minor as father/mother/legal guardian.
  • A Hindu undivided family.
• Non-Resident Indians (NRI) are not eligible to invest in these bonds.
• Minimum Subscription: The bonds will be issued for a minimum amount of Rs. 1000 (face value) and in multiples thereof.
• Maximum Limit: There will be no maximum limit for investment in the bonds.
• A certificate of holding will be issued to the customer as proof of subscription.
• The bonds will be issued only in the electronic form called the Bond Ledger Account (BLA).
• Contributions to the bonds can be made in cash (upto ₹20,000/- only)/ drafts/cheques.
• Interest Rate:
  • The interest on the bonds is payable semi-annually on 1st January and 1st July every year. 
  • The interest rate of the bond would be re-set half-yearly in sync with the coupon payment date. 
  • It is linked to the prevailing National Savings Certificate (NSC) rate with a spread of (+) 35 bps over the respective NSC rate. 
  • There is no option to pay interest on a cumulative basis.
• Repayment/Tenure:
  • The bonds shall be repayable on the expiration of 7 (Seven) years from the date of issue.
  • Premature redemption shall be allowed for specified categories of senior citizens.
• Tax Treatment: Interest received will be taxable under the Income-tax Act, 1961, as amended from time to time and as applicable according to the relevant tax status of the Bond holder.
• Transferability: The Bonds held to the credit of Bond Ledger Account (BLA) of an investor shall not be transferable, except transfer to a nominee(s) legal heir in case of the death of the holder of the Bonds.
• Tradability /Advances: The bonds shall not be tradable in the secondary market and shall not be eligible as collateral for loans from banks, financial Institutions, and Non-Banking Financial Companies (NBFCs) etc.

Key Facts about RBI-Retail Direct Scheme

• It was launched on November 12, 2021, asa one-stop solution to facilitate investment in Government Securities by individual investors.
• Under the scheme, individual investors are permitted to open a Retail Direct Gilt account with the RBI using an online portal, through which investments in government Securities can be made in primary and secondary markets.
• There are 4 kinds of government securities you can invest in through the RBI Retail Direct platform:
  • Government of India Treasury Bills (T-Bills)
  • Government of India Dated Securities (Dated G-Sec or Government Bonds)
  • State Development Loans (SDLs)
  • Sovereign Gold Bonds (SGB)

Q1) What are Bonds?

Bonds are issued by governments and corporations when they want to raise money. By buying a bond, you're giving the issuer a loan, and they agree to pay you back the face value of the loan on a specific date, and to pay you periodic interest payments along the way, usually twice a year.

Source: Individual investors can subscribe to Floating Rate Savings Bonds, 2020 (Taxable), under RBI’s Retail Direct Portal