In recent years, there has been a steady decline observed in interest rates in several investment sectors. This has posed challenges for many senior citizens with limited assets and small investment portfolios to supplement their income. Therefore, the government of India offers a range of Bonds issued by the Reserve Bank Of India which are government-backed. These are easy to understand and safe as well as effective for senior citizens to increase their retirement income.

What Are Bonds?

The Apex Bank of India issue bonds on behalf of the Indian government. The bonds which contain Government of India Savings (Taxable) Bonds assist the government in raising funds for its future projects. The central government raises money for projects and plans by selling bonds. Investors who purchase these get returns at a fixed interest rate. These can be purchased by any Indian citizen, making them accessible to all people. RBI introduced them to the market in 2003.

Governments, financial institutions, and corporations can issue bonds to raise funds from the public.

Types Of RBI Bonds

The Reserve Bank Of India provides a plethora of investment options for senior citizens, with a focus on government bonds. These are mentioned below:

1. Floating Rate Savings Bonds: RBI issues Floating Rate Savings Bonds offering a tenure of seven years. These bonds have no age cap or maximum investment limit, providing flexibility for senior citizens. These bonds mature at face value after seven years.
2. Tax-Free Bonds: Regulated by the Income Tax Act of 1961, tax-free bonds are government securities whose interest is entirely non-taxable. Additionally, interest on these securities does not contribute to total income. With a minimum maturity period of 10 years, these bonds are considered a low-risk investment option.
3. Government Savings Bond: Also known as Government of India Savings Bonds, these are backed by sovereign guarantees. Additionally, these offer a 7.75% interest rate.
4. Fixed Rate Bonds: Fixed-rate bonds are debt securities that provide a recurring interest rate throughout the bond’s duration, or until maturity. These are, classified as fixed-income securities, offer investors a guaranteed rate of interest for a specified period.
5. Debt Mutual Funds: Debt mutual funds focus on fixed-income financial securities, making them a safer option compared to equity funds. The risk associated with debt funds depends on the type of fund and interest rate fluctuations. When interest rates fall, long-term debt funds may offer better returns, while rising interest rates favour short-term debt funds.

Lock-In Period

1. 60 to 70 years of age is six years
2. 70 to 80 years of age is five years
3. Above 80 years of age is four years

Eligibility:

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

1. You must be a resident of India to invest. NRIs or Non-Residents of India are not permitted to invest.
2. 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.
3. Payment for the bond should be made individually or jointly.
4. Hindu Undivided Families (HUFs) are also eligible to invest in RBI Bonds.
5. An institution that has received a Certificate of Registration as a charitable institution as per the laws of India can invest.
6. A charitable institution, that is registered under the 25th Section of the Indian Companies Act of 1956, can also invest.
7. Any institution holding a certificate from the Income Tax Authority under Section 80G of the Income Tax Act of 1961 can invest.
8. 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.

Benefits Of Investing In RBI Bonds

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

1. 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.
2. 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.
3. Liquidity
   While there is a lock-in period, these offer better liquidity compared to some other tax-saving investments like PPF or NSC. In certain situations, investors can redeem them before maturity.
4. Adjusts to Rising Interest Rates
   During periods of increasing interest rates, they 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.
5. 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.

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