7.75% RBI Savings Bonds is a compelling fixed rate investment option. It comes with a guaranteed rate of return and sovereign guarantee for the investment. However, these rates may not be available for long. There is expectation of reduction in interest rates on these bonds.
Update: The 7.75% Bonds are now discontinued. From July 1, 2020, RBI 7.15% Floating Rate Bonds are available, where the interest will be paid out every 6 months and interest rate will be reset based on prevailing rates in the economy. Most other features remain the same.
If you too are considering to lock in at the current rates, here’s all you need to know and apply for the bonds.
- Name: The bond currently available is 7.75% RBI Savings (Taxable) Bonds, 2018.
- Tax: As you can notice, these bonds are taxable. Interest payable on these bonds is subject to tax as per your tax bracket. TDS on interest is applicable. The bonds are exempt from Wealth Tax.
- Payout options: The bonds come in interest paying as well as cumulative option. In case of cumulative option, all the interest will be paid out on maturity along with the principal amount.
- Maturity: The bonds are repayable after 7 years from the date of issue. For those in the age group of 60 years or above, premature redemption is allowed.
- Transferability: The bonds cannot be transferred
- Security type: The bonds are issued in demat form, held in the Bond Ledger Account (BLA) with the respective bank, where you apply. If you don’t have a BLA already, you will get an option to open it.
- Tradability & Collateral: The bonds cannot be traded on the secondary market and are not eligible as collateral for loans.
- Who can apply: The bonds can be applied by Resident Indian, as an individual, joint, either/survivor and minor (with a guardian). HUF is also allowed. (Note: The interest will be paid only in the name of the first applicant.)
- Nomination: Multiple nomination is allowed to the bonds.
- Proof of holding: A Certificate of Holding will be issued to the investor/s of the 7.75% RBI Savings Bonds.
- Where to apply: You can apply with any branch of SBI or nationalised banks as well as Axis, ICICI and HDFC Banks. Many other banks are also allowed to receive these applications. Check with your own bank. Applications can be done in physical as well as electronic format.
- Min or Max Amount: The minimum application amount is Rs. 1000 and then in multiples thereof. There is no maximum limit.
- Brokerage: RBI pays 1% brokerage on the investment amount to the bank which takes the applications.
Key points to remember before you apply
Remember, that these bonds are illiquid in nature. No transfers or trading allowed. Once you apply and get the certificate of holding, the money is essentially locked in for 7 years (lesser if you are 60 years or above).
The interest rate of 7.75% on the bonds is fixed as well as taxable.
The bonds carry a sovereign guarantee of repayment of principal.
When you apply, you may want to choose the anyone/survivor option, for example with your spouse. This allows your spouse to access the investment in case you are not available to operate the account.