scorecardresearchAmid rising interest rates, investors can explore RBI’s floating rate savings

Amid rising interest rates, investors can explore RBI’s floating rate savings bonds. Details here

Updated: 06 Mar 2023, 10:10 AM IST

Interest income on RBI’s Floating Rate Savings Bonds (FRSBs) 2020 is linked to the National Savings Certificate (NSC) and carry a coupon of 7.35 percent per annum

These bonds launched in July 2020 have a lock in period of six years.

These bonds launched in July 2020 have a lock in period of six years.

Thanks to the rising interest rate cycle, fixed income instruments have become reasonably lucrative. From money market funds to sovereign bonds, fixed deposits and floater funds, a slew of risk-free investments are being lapped up by retail and institutional investors alike.

However, apart from these run-of-the-mill alternatives, one can consider to invest in RBI’s floating rate savings bonds, 2020. Let us understand what these bonds are, how can one invest in them, and whether one should consider investing in them, and why?

What are FRSBs?

They are known as RBI’s Floating Rate Savings Bonds, 2020, and are also referred to as FRSBs. Their lock-in period is seven years.

They offer an interest of 7.35 percent per annum, 35 basis points higher than that of NSC (National Savings Certificate). The interest rates of FRSBs are linked to the NSCs.

FRSB’s interest income is taxable, and it is also eligible for the tax deducted at source (TDS).

The minimum investment one can make is 1,000, while there is no maximum investment limit. The interest is paid half yearly in January and July.

Only for senior citizens?

They are a good investment option for senior citizens for whom the lock-in period is six years. These can be opted by regular residents as well if this investment and frequency of returns (once in six months) aligns with their financial goals.

For senior citizens above the age of 70, lock-in period is five years and it is four years for those above the age of 80.

Any resident or HUF can invest in these bonds. They offer risk-free high interest rates.

These bonds are non-tradeable and non-transferable, so they can’t be used as collateral for raising of loan from a bank or non-banking financial institution (NBFC).

Those who want to invest can do it online or can visit any branch of any of these five banks: SBI, IDBI, HDFC Bank, ICICI Bank and Axis Bank.

Comparison with fixed deposits

Although the interest rates offered by FRSBs is reasonably good at 7.35 percent, senior citizens can earn similar, or even higher, return by investing in the fixed deposits (FDs) of commercial banks.

For instance, Bandhan Bank and RBL Bank, offer an interest of up to 8.5 percent and 8.3 percent, respectively, on their fixed deposits.

Read this article in MintGenie for further details on the banks which offer more than 8 percent.

Other banks that offer more than 7.35 percent interest on their fixed deposits (FDs) include Axis Bank (8.01 per cent), IDFC First Bank (8 per cent), IndusInd Bank (7.85 per cent), HDFC Bank (7.75 per cent), PNB (7.75 per cent), KVB Bank (7.65 per cent), ICICI Bank (7.60 per cent), Kotak Mahindra Bank (7.6 per cent) and Indian Overseas Bank (7.50 per cent).

So, all in all — FRSBs can be seen as a safe and secure investment option that offer good returns on a regular basis, but since they have a long lock-in period, investors should be completely sure about their decision before taking the plunge.

Role of bonds in portfolio.
First Published: 06 Mar 2023, 10:10 AM IST