With interest rates at 8.05%, should you invest in RBI floating rate bonds Details here

As broader benchmark indices hover around their all-time highs, ambitious investors cannot be blamed for aiming for the sky. Conservative investors, on the other hand, continue to explore a multitude of investing options among fixed-income instruments.

For investors with a low-risk appetite, there are options galore such as government bonds, term deposits, corporate debt, and debt mutual funds. Another option that investors can explore is RBI floating rate bonds which – needless to mention – are safe and offer reasonably good returns to investors.

What are RBI floating rate bonds?

As the name suggests, RBI Floating rate bonds are bonds with floating interest rates. They were launched with effect from July 1, 2020, and are available for anyone who is a resident in India.

RBI Floating rate bonds provide 100 percent risk-free investment. The minimum investment is ₹1,000 and there is no maximum limit. The interest is payable half-yearly in January and July each year.

The interest rate of floating rate bonds is linked to National Savings Certificate (NSC) and these bonds offer 35 basis points percent higher than the NSC rate.

The latest rate hike of NSC (by 60 basis points to 7.7 percent for the June quarter) led to an increase in the interest rate of floating rate bonds.

The RBI hiked interest rates on its floating rate savings bonds by 70 basis points from 7.35 percent to 8.05 percent.

“The rate of interest on NSC has been set to 7.7 percent for the Second quarter of FY 2023-24, in terms of GoI notification F.No. 1/4/2019 – NS dated June 30, 2023. Accordingly, the coupon rate on FRSB 2020 (T) for the period July 01, 2023, to December 31, 2023, and payable on January 01, 2024, has been reset at 8.05% (7.7% + 0.35% = 8.05%),” reads the RBI’s press release.

The maturity is seven years from the date of investment whereas premature withdrawal is permitted for senior citizens.

The bonds are not tradeable and not transferable.

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