Interest rates sliding: RBI Floating Rate Savings Bond in focus

Kolkata: The words "government bonds" signal the ultimate in safety of capital to everybody in this country. In this era of declining interest rate, government bonds carrying 8.05% interest rate is certainly going to be an attractive bait for most conservative investors, as well as those who apportion their fund between the market and debt products. Therefore, let's have a look at this instrument a little closely.

The RBI has announced that the interest payable on its Floating Rate Savings Bond is going to be 8.05% during the period between July 1 and December 31, 2025. Needless to say, this is one of the highest interest rates an investor in a fixed income instrument is going to be paid in this country no. A simple reason, this is higher than almost all interest rates in bank fixed deposits. RBI bonds offer a 0.35% higher interest rate than NSC (National Savings Certificate).

Interest rates for most banks is within the 7% range. The largest bank in the country SBI is now offering 6.05% on its fixed deposit of tenure between five and 10 years. The interest paid b major private sector banks such a HDFC Bank, ICICI Bank and Axis Bank are significantly below 7%. Only a couple of small finance banks -- Suryoday Small Finance Bank, North East Small Finance Bank and Jana Small Finance Bank offer rates that touch a go beyond the 8% mark.

RBI Floating rate Bonds are, however, lower on liquidity compared to bank fixed deposits. While FDs have no lock-in period, RBI bonds have a lock-in period for seven years. However, this is applicable for those aged below 60. However, if the investor is between 60 and 70 years, the lock-in period decreases to five years and if he/she is above 80 years, the lock-in period is four years.

Tghe interest is paid twice a year -- on January 1 andf July 1. The minimum investible amount is Rs 1,000.

"RBI Floating Rate Bonds are always an appropriate option for the conservative investor and even not-so-conservative investor. RBI FRBs score higher compared on interest rate of bank FDs and the security aspect. Since the rates are floating, one can expect an upward revision when the rates go up. Given that the bonds are issued by the RBI, they provide the highest safety to investors, more than any fixed deposit available in the market," said personal finance strategist and director, Wishlist Capital. He also highlighted the point that the rates of floating rate bonds are revised once every six months. To sum it up, one can easily consider to invest in these bonds is one has an amount of money that which he/she won't need in a hurry.