Earn Rs 40,000 every six months for the next 7 years. Here’s how

You can now invest directly in Floating Rate Savings Bonds, 2020 (Taxable), through the Reserve Bank of India (RBI) Retail Direct Portal. As per the press release issued by the RBI on October 23, subscribers can place bids for Floating Rate Savings Bonds through the auction available on their Retail Direct login.

The Floating Rate Savings Bonds, also called FRSB 2020 (T), come with numerous advantages which make them an attractive investment avenue. Firstly, they offer interest rate higher than National Saving Certificate (NSC), as interest rates are linked to the prevailing rate of NSC with a spread of (+) 35 bps. Currently FRSB 2020 (T) offers 8.05% valid until December 2023.

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So, if you invest Rs 10 lakh, you will get around Rs 40,000 as interest every six months. Issued by the Government of India, the bonds guarantee a risk-free return on investment to those investing in it. The rates are however reviewed every six months on January 1 and July 1.

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These bonds have a tenure of 7 years from the date of their issuance. However, senior citizens will enjoy the advantage of an early exit option, available after the lock-in periods of 4, 5, and 6 years, contingent on the age demographics of 80 years and above, 70 to 80 years, and 60 to 70 years respectively.

The investment threshold for the FRSB 2020 (T) is quite flexible. The minimum investment requirement is pegged at Rs 1,000, with no upper limit set, thus enabling participation from all investor categories. 

However, there are a couple of aspects that investors should consider. Firstly, the interest accrued on these bonds is subject to tax, and Tax Deducted at Source (TDS) shall be applicable when the interest is paid. Secondly, these bonds cannot be transferred and are not tradable, which means that you hold onto them till maturity.

The RBI-Retail Direct Scheme was launched on November 12, 2021, and allows individual investors to establish a Retail Direct Gilt account directly with the RBI. This can be done conveniently through an online portal (https://rbiretaildirect.org.in), enabling investments in government securities in both the primary and secondary markets. Currently, retail investors have the opportunity to invest in various financial instruments through the Retail Direct Portal, including Central Government Securities, Treasury Bills, State Government Securities, and Sovereign Gold Bonds. The scheme aims to make Government Securities easily accessible to retail investors by streamlining the investment process.