Financial Planning - Ask the Expert

Interest rate can be changed by RBI on either of the two dates i.e. 1st January or 1st July. Now, the next revision is due on 1st January 2022 when RBI may decide to either change the rate or keep it same.

-  Anil Chopra

Q. Dear Sir, I have attended one of your Retirement Planning webinars where you were recommending to invest some part of the money in Floating Rates Saving Bonds. Can you please explain the rules and features again? -Dilip Shenoy, Mumbai

A. Yes, Mr Shenoy. Floating Rates Saving Bonds are very good option for investors looking for safe and good returns. These bonds are issued under RBI guidelines and the period of these bonds is seven years. Interest is paid at half-yearly intervals. All Indian residents can invest in these bonds. NRIs are not allowed. There is no upper limit on the amount of investment in these bonds. Currently the interest rate is 7.15% p.a. payable half-yearly. However, please note that this interest rate of 7.15% is not assured for the entire period of 7 years.

Please note that interest rate paid on Floating Rates Saving Bonds is linked to the interest being paid on National Saving Certificates. Interest rate on Floating Rate Saving Bonds is 0.35% higher than the interest being paid on National Saving Certificates. Currently, NSC carry an interest rate of 6.80 % p.a., that’s why interest rate being offered on Floating Rates Saving Bonds is 7.15% (6.80+0.35).

It is important to note here that the interest income is fully taxable and there is TDS also @ 10% in case the interest income exceeds Rs.10,000 in one financial year.