To borrow money from the public, financial institutions, businesses and governments issue floating rate bonds. Unlike standard regular bonds with a fixed interest rate, floating rate bonds have a Rate of interest which is linked to a predetermined benchmark rate and is reset from time to time.
What is RBI Floating Rate Bond Interest Rate
The interest rates on these bonds are linked to the rate of the National Savings Certificate (NSC), the post office’s small savings scheme. As per the scheme instructions published on June 26, 2020, these variable rate bonds will earn 0.35 per cent more than the current NSC rate.
in present, reserve Bank of India Floating rate bonds carry an interest rate of 7.15 percent. The current NSC interest rate is 6.8 percent, plus 0.35 percent, which equates to an annual interest rate of 7.15 percent. The interest rates on these bonds are reset/reviewed every six months.
The government evaluates the NSC interest rate every three months. According to the calculations of the Shyamala Gopinath Committee, the interest rates for various schemes should be 0.25 to 1% higher than yields of government bonds of comparable maturity.
interest payment
The interest rate for the first coupon payment of the bond due on January 1, 2021 was fixed at 7.15 per cent as the subscription to RBI’s variable rate bonds became available on July 1, 2020.
Interest is payable semi-annually from the date of issue of the bond till June 30/December 31, as applicable, and then half-yearly on July 1 and January 1 for periods ending June 30 and December 31, respectively Is.
RBI floating rate taxation
Depending on the relevant tax status of the bond holder, interest on the bond will be subject to taxation under the Income Tax Act of 1961. While interest is being paid, taxes will be deducted at source.
Features of RBI Savings Bonds
a) These bonds can be purchased by residents and Hindu Undivided Families (HUFs).
b) The minimum investment in these bonds is Rs 1,000, with no maximum amount.
c) Bonds have a fixed tenure of seven years. Individual investors aged 60 years and above can make premature withdrawals subject to a minimum lock-in time based on the age of the bond holder.
d) These bonds do not pay interest on a cumulative basis (at the end of the bond’s maturity). Every year, on 1st January and 1st July, half of the interest amount is paid.
e) Bonds are not transferable. Transferability is limited to the nominee/legal heir in case of death of the holder.
f) Bonds are not tradable in the secondary market and are also not eligible as collateral for obtaining loans.
g) The sole holder or the sole surviving holder of the bond, being an individual, can make a nomination.