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RBI 8% Savings (Taxable) Bonds – Are they right for you?

This article explains the features of the RBI’s 8% savings bonds (also referred to as “RBI Relief Bonds”), and discusses if you should be investing in them.

The Reserve Bank of India (RBI) has various bonds issued for the general public. The “8% Savings (Taxable) Bonds 2003” are one of them.

Let’s understand the features of these bonds.

 

The rate of interest

This is quite clear from the name of the bonds itself – the rate of interest offered on these bonds is 8% per year.

 

Tenure / Duration of the bond

The bonds would be issued for a period of 6 years.

 

Interest payment

The bonds would have two options – cumulative, and non-cumulative.

For the non-cumulative bonds, the interest would be paid every 6 months (half yearly).

For the cumulative bonds, the interest will be compounded with half-yearly rests and will be paid on maturity (along with the principal). The maturity value of the cumulative bonds would be Rs. 1,601 for a bond having a face value of Rs. 1,000.

 

Income Tax (IT) on the interest earned

Again, as the name suggests, the interest earned from these bonds is fully taxable. It would be added to your income as “Other income”, and would be taxed at the tax rate applicable to you as per your income tax bracket.

(Please read “Income Tax (IT) Slabs / Brackets and rates” to know the most current IT slabs)

 

Tax Deducted at Source (TDS)

TDS would be applicable to these bonds – TDS would be deducted from the interest that you earn from these bonds.

 

Wealth tax

These bonds would be exempt from wealth tax.

 

Safety of your money

Since the bonds are issued by RBI, your money is absolutely safe – the payment is guaranteed by the government of India.

 

Date of issue

The issuing of these bonds started in April 2003. These bonds are available on tap, that is, they are available as and when required by you – you can buy them any time.

 

Who can invest

The bonds can be purchased by individuals, either in a single name or in joint names. The bonds can also be purchased on behalf of a minor.

The bonds can also be purchased by an HUF (Hindu Undivided Family).

The bonds can not be purchased by non-resident Indians (NRIs).

(Please read “Definition of Residential Statuses: Resident, RNOR, NRI, PIO etc” for more information on residential statuses)

 

Minimum investment

The bonds have a face value of Rs. 1,000. Thus, the minimum investment is Rs. 1,000.

Additional investment would be in multiples of Rs. 1,000.

 

Maximum investment

There is no upper limit / cap on investment in these bonds. There is no maximum amount – you ca invest as much as you like in these bonds.

 

Nomination

Making a nomination is possible with the RBI 8% savings bonds.

(To know more about nomination, please read “When you aren’t around – Succession Planning – Will and Nomination”)

 

Transferability

These bonds are not transferable – they can not be transferred to another name once you purchase it.

The bonds are not tradeable, and can not be a given as a collateral for obtaining a loan.

 

Should you invest in the RBI 8% Savings (Taxable) Bonds?

Looking at the features, there is nothing compelling about these bonds!

Even with todays low interest rates, the rate of interest offered on fixed deposits (FDs) even by large banks is only slightly lower than 8% – and for a period of 3-4 years only. So, an 8% interest rate for a lock-in of 6 years is not advisable.

The only thing that works in favour of these bonds is the safety aspect – the money is guaranteed by the government of India, and is absolutely safe. But even our banks are quite safe, and the safety aspect alone doesn’t justify investment in these bonds!

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