RBI Floating Rate Bond Interest Rate 2024

The government raises money for projects by selling bonds. Investors purchase bonds and get returns at fixed interest rate. These bonds help bring stability to investment portfolios, especially when the market is unpredictable. In India, the Reserve Bank of India (RBI) manages different types of government bonds, including floating-rate bonds and savings bonds. This guide will help you understand these bonds and the interest rates RBI bonds offer in 2024.

What is an RBI Bond?

The Reserve Bank of India issues RBI bonds on behalf of the Indian government. These bonds, which include Government of India Savings (Taxable) Bonds, serve as a means for the government to raise funds for its projects and plans. Any Indian citizen can buy these bonds, making them accessible to all. 

Interest on these bonds is paid semi-annually on January 1st and July 1st at a rate of 8.05% per annum. Moreover, the RBI notifies any changes in the interest rate. Unlike the other types of bonds, the cumulative option is not available for RBI bonds. Various public and private sector banks provide these types of bonds to the citizens.

What are Floating Rate Bonds?

A floating rate bond features a variable coupon payment, meaning the interest rate changes based on the benchmark rate reset regularly. In simpler terms, the interest rate of a floating rate bond fluctuates during its term. 

Governments, financial institutions, and corporations can issue floating-rate bonds to raise funds from the public. The RBI offers floating rate bonds (FRBs) with a coupon rate (interest rate) decided by the rate of NSC certificates issued by the Government of India. These bonds have a maturity period of seven years. 

Types of RBI Bonds

RBI Floating Rate Bond Interest Rate 2024

The current RBI floating rate bond interest rate for 2024 is 8.05% per annum, making it a noteworthy choice among debt investments. This interest rate is variable and tied to the interest rate of the National Savings Certificate (NSC), a government-backed savings scheme, unlike fixed-rate bonds.

These bonds offer a 0.35% higher interest rate compared to NSC. When NSC rates rise, so do the rates for RBI Floating Rate Savings Bonds, and vice versa when NSC rates fall. This link ensures that the interest rate on these bonds remains competitive and responsive to market changes.

RBI Bond Interest Rate for Senior Citizens

The RBI bond interest rate for senior citizens is 8.05% p.a. and this bond is completely safe for them. It is easy for most senior citizens to buy these bonds because the minimum investment needed is low. Additionally, if needed, senior citizens can withdraw their money early. Since the interest rates change every six months, retirees can benefit if rates go up.

RBI Floating Rate Bond Lock-in Period

The bond has a lock-in period of 7 years starting from the issue date, and no interest is earned after it matures. Instead, interest is paid half-yearly on 1st January and 1st July of every year. Investors aged 60 and above can redeem the bond early according to RBI's regulations.

RBI Bonds Eligibility

To avail RBI bonds interest rate, you need to meet the following eligibility criteria:

• You must be a resident of India to invest in RBI Bonds.
• NRIs or Non-Residents of India are not permitted to invest in RBI Bonds.
• You must be a legal adult and can invest either in your own name or on behalf of a minor, such as a parent or legal guardian.
• Payment for the bond should be made individually or jointly.
• Hindu Undivided Families (HUFs) are also eligible to invest in RBI Bonds.
• An institution that has received a Certificate of Registration as a charitable institution as per the laws of India can invest.
• A charitable institution that is registered under the 25th Section of the Indian Companies Act of 1956, can also invest.
• Any institution holding a certificate from the Income Tax Authority under Section 80G of the Income Tax Act of 1961 can invest in RBI bonds.
• Any university under a Central, State, or Provincial Act, including institutions declared a university under Section 3 of the University Grants Commission Act of 1956 is eligible. 

RBI Bonds Minimum and Maximum Investment Limits

You need to invest a minimum of Rs. 1,000 in RBI bonds, and after that, you can invest in multiples of Rs. 1,000. There is no maximum limit on how much you can invest in RBI bonds. However, if you invest via cash, you can invest at most Rs. 20,000. 

Tax on RBI Bonds 

Under the Income Tax Act of 1961, Tax is applicable on the earned interest from RBI bonds. Tax rate depends on investor's income tax bracket.  Additionally, you do not have to pay wealth tax on the RBI bonds under the Wealth-tax Act, 1957.

Benefits of Investing in RBI Bonds

The following are the benefits you can enjoy by investing in RBI bonds in 2024:

• Tax Benefits

While the bond does not offer tax exemptions on interest earned, the income is taxable according to the investor's applicable income tax slab. This benefits individuals in lower tax brackets. Moreover, its competitive interest rate makes it an attractive choice for many.

• Interest Rate

The main attraction of the RBI floating rate bond is its lucrative interest rate set at 8.05% p.a. Amidst lower fixed deposit interest rates offered by banks and low-yield investments, this rate offers investors the chance to get better profits on their investments. 

• Liquidity

While there is a lock-in period, these bonds offer better liquidity compared to some other tax-saving investments like PPF or NSC. In certain situations, investors can redeem the bonds before maturity.

• Adjusts to Rising Interest Rates

During periods of increasing interest rates, RBI floating-rate bonds offer an advantage as their coupon payments rise accordingly. This helps mitigate the risk associated with declining bond prices common in fixed-rate bonds when interest rates climb.

• Tenure and Liquidity

With a seven-year tenure, the RBI floating rate savings bond provides a reasonable long maturity period allowing investors to lock-in the lucrative interest rates.  Although non-tradable and non-transferable, investors can exit prematurely after a lock-in period of a year, which provides them some liquidity.

• Safety

Backed and issued by the Government of India, the RBI floating rate savings bond is a secure and trustworthy investment. Its sovereign guarantee given by GOI ensures both the principal investment and accrued interest are safe, giving peace of mind to cautious investors.

How to Buy RBI Floating Rate Bond?

You can buy RBI Bonds at any bank branch of your choice that the RBI authorises. You can also invest in RBI bonds online only through some authorised distributors.

To invest, you need to visit the bank and complete the application form by providing all the necessary information and documents. After filling out the form, deposit the required amount by cash or cheque at the designated branch. 

Factors Affecting RBI Bond Interest Rates

The RBI bond interest rates are influenced by various factors, including bond yields and market demand. Bond yields, which are determined by the equilibrium between supply and demand in the secondary market, play a significant role. When bond yields rise, bond prices decrease, leading to a higher yield. 

For instance, if market interest rates surpass the coupon rate of a bond, investors may prefer newer bonds with higher interest rates, prompting sellers to lower bond prices to attract buyers. Consequently, the coupon rate of the bond increases relative to its reduced face value, resulting in a higher yield.

Final Word

The RBI floating rate savings bond, backed by the Government of India, ensures a secure path for safeguarding and growing your wealth. Before making a decision, consider your goals, risk tolerance, and tax implications. Moreover, seeking guidance from financial advisors and making informed choices is crucial when exploring the potential of RBI bond interest rates.