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

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The Reserve Bank of India (RBI) recently expanded the basket of products offered through the Retail Direct Portal, allowing retail investors to subscribe to 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