Are you looking for attractive investment opportunities given the recent drop in interest rates offered by your Savings Bank Account and Fixed Deposits? Not sure what financial instruments to invest in to get decent returns with lesser or no risk? Look no further! The Govt. of India (GoI) has recently launched the Floating Rate Savings (FRS) bonds 2020 (taxable) scheme on 1st July that provides an attractive 7.15% interest currently and is risk-free in nature.
As the name suggests, interest rate on these bonds is floating in nature i.e. it will be reset half yearly. Also, the interest will be paid out semi-annually on January 1st and July 1st. The interest rate offered is 35 basis points (100bps = 1%) above prevailing National Savings Certificate (NSC) rate of 6.80%. This makes the current rate to be 7.15% and it can change in the future depending on the interest offered by NSC. These bonds come with a 7 year lock-in period and so will mature in July 2027.
FRS bonds are a 100% risk free investment option as interest payments on these are guaranteed by the GoI. But as these bonds are not listed on any secondary exchange, this means that it does not offer any interim exit to the investor. However, there is scope of pre-mature withdrawal for senior citizens.
The interest earned on these bonds will be taxed as per your existing tax slab. Although TDS will be deducted on interest payment similar to an FD, the same can be claimed back while filing Income Tax returns.
These bonds are a good investment avenue for investors who are looking for fixed return products which are risk-free in nature. The interest rate offered i.e. 7.15% is attractive relative to an FD at ~5.50% for a tenure of about 5-10 years. Also, as interest is paid out twice a year unlike an FD, investors looking for regular income can opt for it. However, make sure that you only invest the amount that you can easily set aside for a period of 7 years to not feel any cash flow crunch in the meantime.
Investors can buy these bonds starting from as low as INR 1,000 and in multiples of INR 1,000 thereof from any nationalised bank branch like SBI, Bank of Baroda etc. and private banks like HDFC, ICICI, Axis etc. There is no investment limit on these bonds.