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RBI Floating Rate Savings Bonds: Features, Risks, and Returns

RBI Floating Rate Savings Bonds: Features, Risks, and Returns

Smart investments are key to long-term financial stability and growth. Today, investors can access various investment options, each catering to different risk appetites, financial goals, and investment horizons. From stocks and mutual funds to fixed deposits and bonds, investors can tailor their portfolios per their risk appetite and long-term goals.

One such investment avenue is the RBI Floating Rate Savings Bonds (FRSB). Backed by the Government of India, this investment instrument is ideal for risk-averse investors seeking a seamless blend of safety and reasonable returns. Read on to find out everything you need to know about these bonds.

What is Floating Rate Savings Bonds?

Floating Rate Savings Bonds are securities offered by the RBI on behalf of the Indian government. They are fixed-income instruments and offer a variable interest rate that depends on the rates of National Savings Certificates (NSC).

FRSB offers a generous return on investment, which is 35 basis points over the prevailing NSC rates. This means that if the NSC offers interest of 8%, the one reflected on FRSB will be 8.35%.

On top of this, FRSBs are government-backed securities. Hence, these bonds have a sovereign guarantee that makes them risk-free. A higher return coupled with no risk makes these bonds extremely attractive to individuals inclined towards steady growth with minimal risks.

Salient features of Floating Rate Savings Bonds

Before starting your investment journey with a Floating Rate Savings Bonds, here are some key features that you must know:

1. Investment amount: FSRBs have a minimum investment amount of ₹1,000. There is no upper threshold, but the funds should be in multiples of ₹1,000s. 

2. Investment tenure: Floating Rate Savings Bonds have a long maturity period of 7 years. However, pre-mature withdrawal options are available for certain categories of senior citizens.

3. Interest payouts: The non-cumulative payout option will offer interest payments twice a year.

4. Interest rates: The FRSB interest rates are benchmarked upon the prevailing rate of NSC, with an additional 35 basis points offered by the bond. For payments due on 1st January 2024, FRSB’s rate is 8.05%.

5. Taxability: The returns on Floating Rate Savings Bonds are taxable. Hence, depending upon your tax slab, you will be liable to pay taxes on the interest received. FRSBs also qualify for Tax Deducted at Source (TDS). Hence, the appropriate TDS shall be deducted during every interest payment.

6. Application: You can easily apply for FRSB offline and online. If you wish to apply offline, visit your bank’s nearest branch or your distributor / advisor, fill out their physical application form, and submit it along with the necessary KYC documents and cheques. For online application,

Apply through RBI retail direct portal or with specified bank portal as notified by RBI.

Eligibility criteria

You can apply for a Floating Rate Savings Bond if you fall into any of the following categories:

1. Individuals who are Indian residents

2. Joint holding between two individuals

3. Guardians on behalf of minors

4. Hindu Undivided Families (HUFs)

Documents required

To apply for a Floating Rate Savings Bond, you must present the following documents:

1. Application form duly filled and signed

2. Self-attested PAN card copy

3. Self-attested address proof

4. Cancelled cheque leaf of the bank account mentioned in the application form

5. Guardian-attested birth certificate (For minors only)

Parting thoughts

The RBI Floating Rate Savings Bond is an attractive investment option for those prioritising capital safety with a steady income. Offering stable returns with lower risks, these bonds can be an attractive option to diversify your portfolio. Explore multiple investment opportunities according to your financial needs with Tata Capital Wealth. Our best-in-class services allow you to tap into a broad spectrum of investment avenues to help you achieve your financial goals. Request a callback from our wealth managers today!   

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