The Government of India decided to issue 7.75% Savings (Taxable) Bonds, 2018 with effect from January 10, 2018, to enable resident citizens/HUF to invest in a taxable bond, without any monetary ceiling.
The bonds suit conservative investors who are looking for assured and fixed returns with complete safety of their principal amount. However, currently, the interest rate is not high enough compared to the instruments that a retiree usually looks at.
Features of the bond
- RBI 7.75% bonds have a tenor of seven years.
- For those in the age bracket of 60 to 70 years, the lock-in period is six years from the date of issue. For those between 70 years and 80 years, it is five years. And for anyone above 80 years, it is four years
- Premature encashment is not available for those below 60 years of age. However, 50% of the interest rate due and payable for the last six months of the holding period is recovered by the bonds in cases of premature encashment.
- The interest rate on these bonds is calculated annually but is payable on a half-yearly basis.
- You can also choose the cumulative interest option in which interest is paid at the maturity of the bond.
- No maximum limit on investment
- Only Indian citizens can apply for these bonds.
- You can nominate more than one person. However, no nomination can be made with respect to bonds issued in the name of a minor. Also, you cannot take loans against the deposit made in the bonds. And the bonds held to the credit of an investor’s Bonds Ledger is not transferable.
- The interest rate received is fully taxable. During the payout, TDS is cut.
- Due to its long tenure, they aren’t liquid.
- The bonds cannot be converted and used to obtain loans from banks or NBFCs.
The RBI bonds seem to be a good investment opportunity for risk-averse investors and senior citizens, as long as they’re prepared to lock away the principal amount for the designated period. If you are looking for guaranteed income options, these bonds may fit the bill and may help you create income ladders to provide a stream of income in the future, say, to meet a recurring expense like education fees or income in retirement.
But be careful when opting for these bonds to create an income ladder as you can’t be sure how long they will continue given the recent spate of rate cuts for other government schemes. the bonds may be suitable for senior citizens, but only those willing to compromise on liquidity and who may be looking at passing on their assets to the next generation.
If you want assured income for the next seven years and don’t wish to stomach the volatility in debt funds or the risk in corporate bonds, this is a good option.
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