RBI Bonds Investment

Presently, the interest rates of fixed income schemes offered by banks (like Fixed Deposits) have witnessed a downward trend. A substantial investment in such financial instruments can yield 1-2% higher than any bank deposit schemes available. Hence, RBI Bonds are not just a boon for investors but salvation too.

These bonds are issued by India’s federal bank and offer a compounded/half-yearly interest rate of 7.75%. HUFs and individuals (minor, single, or joint) are eligible to invest in these bonds; however, NRIs are not entitled to it.

Furthermore, such bonds have a tenure of seven years and are issued for a minimum investment of Rs. 1000 (face value) and in multiples after that. Hence, the issue prices will be Rs. 1000 for every Rs. 1000 (nominal).

Note: The RBI Bonds are primarily of two types:

-Cumulative- You get Rs. 1703 on maturity after seven years for every investment of Rs. 1000

-Non-cumulative- Interest paid every year on August 1 and February 1

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What are RBI Investment Bonds?

Investment bonds are financial bonds that are secure and risk-free. Corporations or governments across the globe issue such fixed-income investments. The bond owners/ holders/ investors of such fixed-term instruments are generally citizens or individuals.

Investment bonds are generally issued to accumulate money for key purposes like development, warfare, etc. The primary issuer of the bonds is the government or any other government entity. Simply put, the bond issuers are the debtors of the investors.

With these fixed income instruments, the principal sum is kept with the authorised issuer until maturity. After maturity, bonds are returned to the investors with a fixed interest rate.

In addition, investment in bonds leads to a host of other benefits like capital preservation, Risk Management, Income Generation, diversification, etc. Also, at face value, these bonds carry fewer risks than stocks. Hence, they offer enough time to recoup the losses.

Note: These fixed-term instruments are called Government of India Savings Bonds.

Introduction to RBI Bonds

There are different types of bonds available in the market to invest in. However, Reserve Bank of India bonds tops the chart as the most subtle one. It was presented in the country in 2003 as RBI Bonds, issued by the Government of India. Only the citizens of the country are eligible to buy these bonds.

It is easy to buy RBI Bonds via 12 nationalised banks and SBI. Here is the list:

  • Bank of Baroda
  • Central Bank of India
  • Canara Bank
  • UCO Bank
  • Indian Bank
  • SBI
  • Punjab and Sind Bank
  • Indian Overseas Bank
  • UBI
  • Punjab National Bank
  • Bank of Maharashtra

Note: RBI Bonds can also be purchased from private banks like ICICI Bank, HDFC Bank, Axis Bank, IDBI, and Stock Holding Corporation of India Limited.

Features of RBI Bonds

Here is a brief overview of the several features that illustrate the RBI Bonds:

  • The investor must be an inhabitant of India.
  • The investor can be an adult investing on behalf of a minor. The investor can also be major investing for him/her.
  • The investor must be capable of sustaining the investment as joint holder or individual capacity.
  • The investor can be a sole holder and be from a Hindu undivided family.
  • NRIs are not qualified to invest in these bonds.
  • The RBI bonds application form can be attained via electronic form concerning the Bond Ledger account.
  • The RBI Bond maturity is seven years from its date of issue. However, it is possible to request premature withdrawal any time before the maturity term of seven years. But a penalty is levied during the same. The penalty is not applicable to senior citizens. For others, the penalty is 50% of the due interest of the last six months of the bond’s tenure.
  • The minimum investment allowed in RBI Bonds during its maturity term of seven years is Rs. 1000. Even when no maximum limit on investment is set, investors are needed to spend in the multiples of 1000.
  • Such bonds cannot be used as collateral during borrowing loans. Hence, they cannot be traded in the secondary market.
  • The rate of interest is fixed at 7.75% for RBI Bonds. The interest earned during the tenure of seven years of the maturity period is completely taxable. The interest, however, is changed after every six months.
  • The payment of interest has two easy options. If it is non-cumulative interest, then the interest amount is paid once in half a year or every six months.
  • The cumulative option, on the other hand, requires investors to pay the interest after the maturity period has ended. Furthermore, the interest incurred for such fixed income instruments is taxable.
  • It is not possible to transfer the ownership of these bonds. It simply means that an individual cannot shift the RBI Bond ownership to a different person.
  • However, if the original bondholder dies, the bond is sent directly to the indicated nominee by the bondholder while buying the bonds. If the bond is owned by an individual or subjected to joint ownership, the registered bondholders can file a nomination for the given bond.
  • For the amount to be acquired directly post maturity, all bondholders must deliver crucial information to the related accounts of the issuer.

Why Invest in RBI Bonds?

Pondering the features of the bonds from the Reserve Bank of India, the obvious question arises, why is it important to invest in government RBI Bonds?

The answer is easy. Such fixed income instruments are not just profitable; they are extremely safe and secure.

Also, regardless of the lock-in period offered to the investors, the RBI Bonds are generated by the Reserve Bank of India. It is done on behalf of the Indian Government. This makes such fixed income instruments secure for investment by every citizen of India.

Add to it; these bonds are not exempted from tax, still, they do not accumulate any wealth tax. Hence, the option of nomination is kept open for those who require it, like senior citizens.

Furthermore, there is no maximum limit to buying such financial instruments. It is possible to purchase these bonds of any amount.

Final Words

The RBI Bonds or Government of India Savings Bonds are deemed one of the most profitable sources of investment. Secured and reliable, these bonds are issued by the Indian federal bank on behalf of the government. This makes them a more secure investment in comparison to other alternatives like schemes, stocks, etc.

There are several crucial features of these bonds that define their eligibility. Also, it is easy to get started with such fixed investment schemes with a minimum investment of Rs. 1000.

Such bonds, even of a minimum amount, are considered promising investments for the long run because they have a high yielding capacity compared to other sources of investments.