About 7.75% Government of India Bonds
For those seeking comfort in safety of returns, the Government of
India issued 8% savings bonds which were first launched in 2003.These bonds had
a maturity period of 6 years and were taxable. The bonds were available at all
times with specified distributors through whom you can apply to invest in
them.
Now, from January 2018, Government of India have re-launched these
bonds with interest rate of 7.75% and maturity period of 7 years. These bonds
are also taxable as the earlier bonds.
After December 2016, since the interest rates on Bank Fixed
Deposits have dropped to about 6.5% to 6.75%, people have started looking for
better alternatives to Bank fixed deposits and these bonds have again gained
some popularity among retail investors.
Here is a quick guide to
what the bond offers and its features which can help you to check its
suitability for your investments.
What are these bonds?
These
are like any other government bonds with specified rate of interest. The rate
is fixed at 8% per annum paid half yearly, or you can opt for cumulative
payment of interest at the end of the tenure. You can buy these bonds from
State Bank of India and its associates, other nationalized banks and some
private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others.
The bonds can be bought from the offices of Stock Holding Corporation of India
as well. They are available in physical form only and are not listed or
tradable on stock exchanges. The minimum investment amount is Rs1,000 (face
value of one bond) and there is no maximum limit of investment. The interest
received from these bonds is taxable, at the marginal rate of income tax you
are liable to pay. Tax is deducted at source if your total interest exceeds
Rs10,000.
What’s good about these bonds?
In
the current market environment, interest rates in the economy are expected to
head lower. The benchmark repo rate has been lowered from a peak of 8% in 2014
to 6.25% now. This has meant that small savings rates and fixed deposit rates
have also fallen. This bond at 8% now boasts a rate of interest higher than the
SBI 5-year fixed deposit, the post office monthly income scheme, the National
Savings Certificate and the Kisan Vikas Patra. Being issued by the Reserve Bank
of India means it is associated with security and safety. The rate fixed by the
government has not been changed so far and buying this bond now means locking
in income for 6 years at a relatively higher rate.
What’s not so good about these bonds?
Since
the bonds are not listed, there is no secondary market exit. While you can
apply for the bond with a joint holder, you cannot transfer it. You can pledge
the bond to raise a loan but that facility is limited to loans from scheduled
commercial banks. All the documentation for the bond, nomination, any pledge or
transfer at death of the holder is to be done in physical form and there is no
online facility available at present. You can, however, apply online through an
online portal— icicidirect.com (which acts as a distributor for ICICI Bank for
this bond)—if you are a registered user.
This is a good option for those
savers which seek safety over returns.
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