With banks reducing deposit rates, investing in RBI Floating Rate Savings Bonds is an ideal alternative, especially for senior citizens who depend on stable, regular income. The bonds carry sovereign backing and are currently offering an attractive yield of 8.05%, significantly higher than most senior citizen bank fixed deposits.
These bonds have a tenure of seven years, and the interest payout frequency is half-yearly — on January 1 and July 1 each year. While the minimum investment amount is Rs 1,000, there is no upper limit of investment in these bonds. The coupon will vary during the tenure and is based on the rate of interest of National Savings Certificates (NSC) plus a spread of 0.35%.
Vishal Goenka, co-founder, IndiaBonds.com, says these bonds provide excellent credit safety and reliability. “For senior citizens seeking predictable returns and protection against interest rate volatility, allocating capital to RBI Floating Rate Savings Bonds improves their income certainty,” he says.
Ease of investing
The process for investing in these bonds has become considerably straightforward and accessible. Investors can purchase these bonds by opening a Bond Ledger Account (BLA) via the RBI Retail Direct Portal, with minimum investment of Rs 1,000. Authorised banks and some regulated investment platforms also offer RBI Floating Rate Savings Bonds.
Abhijit Roy, CEO, GoldenPi , an online platform to invest in bonds, says being government-backed, these bonds carry no default risk, making them ideal for risk-averse or elderly investors. “Digital application and e-holding facility make it accessible without physical visits for most tech-friendly seniors,” he adds.
Lock-in period
These bonds have a lock-in period of seven years, with premature withdrawal only for senior citizens after a minimum holding period. Senior citizens can opt for premature redemption based on their age at the time of redemption. For those between 60–70 years, premature withdrawal can be done after six years. Those in the 70–80 years age group can go for premature redemption after five years, and those above 80 years, after four years. A penalty of 50% of the interest from the last six months will be deducted, and payment is made on the next interest due date.
Given the absence of premature withdrawal provisions for regular investors—and restricted options even for senior citizens—investors must assess their liquidity needs before investing in these bonds.
“Investors must match investment horizons with liquidity needs and consider splitting their corpus — part into these bonds for safety, part into short-term debt funds or laddered FDs for flexibility,” says Roy. Splitting investments such that the maturity dates are staggered make for better cash flow.
Diversify portfolio
Investors should ensure they maintain adequate liquidity by diversifying their portfolio with corporate bonds, which offer fixed interest income and better liquidity in secondary markets. “A balanced portfolio that integrates RBI Floating Rate Savings Bonds with readily redeemable instruments helps investors manage unforeseen financial requirements effectively, ensuring income stability and financial flexibility,” he says.
At the time of investing in these bonds, investors can either opt for cumulative option where the interest is received at the time of maturity along with the principal. Or opt for semi-annual interest payouts and the principal is returned at maturity. While the bonds’ sovereign backing ensures minimal credit risk, aligning investment tenure with personal financial goals remains essential.
However, these bonds cannot be used as collateral for loans from banks, financial institutions, or non-banking companies and are not tradable or transferable. These bonds can be purchased only by resident Indians and Hindu Undivided Families. Non-Resident Indians (NRIs) are not eligible to invest in these bonds. The sole holder or all the joint holders can nominate one or more persons.
Unlike a National Savings Certificate or a five-year fixed deposit, an investor cannot claim any tax deduction for investing in these bonds. The returns are fully taxable as per the individual’s marginal tax rate, just like bank deposits and even debt-oriented mutual funds.
