Government to issue floating-rate bonds at a rate of 7.15%; this is a good investment opportunity

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The government of India withdrew the popular 7.75 percent (taxable) bonds on 28th May, now the government has announced the launch of a new series of bonds with an interest rate of 7.15 percent. However, the rate of this bond will be reset every six months as per prevailing interest rates. The bonds will have a tenor of seven years and their interest will be taxed at the individual’s tax slab rate. These bonds can be purchased from nationalized banks and specified private sector banks. These bonds are allowed for subscription only to resident Indians or Hindu Undivided Families (HUFs).

The minimum subscription amount is ₹1,000 and one can subscribe in multiples of ₹1,000 only. There is no maximum investment limit for these bonds. On the 1st of January and 1st of July every year the interest rate on the bonds will be paid. On 1 January 2021 the first interest rate payment will be made at 7.15 percent. The interest can be reinvested to buy fresh bonds in the multiples of ₹1,000 to compound your money. However, the reinvestment on these bonds will have a fresh tenor of seven years.

Trading the bonds or using it as collateral for loans are not allowed. However, the legal heirs of the holder can inherit these bonds. For senior citizens, premature redemption will be available in certain cases. These bonds are guaranteed by the government of India thus making them very low risk. These bonds have a floating rate on them which will be high when overall rates in the economy go up. This will be beneficial for the bondholders in times of high inflation when interest rates are generally hiked. However, when interest rates are lower, the rates on the bonds will also come down. There are few other alternatives to investors like Public Provident Fund (PPF), National Savings Certificate (NSC), Sukanya Samriddhi Yojana (SSY), and Kisan Vikas Patra (KVP).

Prableen Bajpai, founder of Finfix Research and Analytics which is a wealth management firm said that given the current situation, these bonds are a decent offering, considering the safety aspect and no upper limit for investment. People, especially senior citizens looking to invest money in safer options for a long period and not requiring regular monthly income can consider these bonds. The payout on these bonds is annual.

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