The half-yearly interest reset of RBI Floating rate bonds has happened in July. From July 1 till December 31st 2023, the interest rates on these bonds have been revised to 8.05 per cent p.a.
RBI floating rate bonds are offered by the government with sovereign guarantee. The bonds are repayable after 7 years. They offer a half yearly interest payout and the interest rates are linked to National Savings Certificate (NSC), paying 0.35 per cent more than NSC. The current rate on NSC is 7.7 per cent p.a. So, RBI floating rate bonds presently fetch 0.35 per cent more which comes to 8.05 per cent p.a. The interest rates are market linked and reset half yearly. Interest income on these bonds is taxable.
The basic features of RBI floating rate bonds are outlined below:
Major risks:
- Interest rate risk: These are floating rate bonds, so interest rates are subject to change and linked to NSC rates. They will fluctuate as interest rates of NSC move up and down. So, interest income from these bonds is not constant.
- Liquidity risk: This is a major risk as the tenure of the bonds is 7 years. Premature withdrawal option is available but only for investors of age 60 and above. These bonds are also not tradable, transferable and cannot be offered as collateral.
Who should invest:
Any investor who can afford to lock-in money for 7 years and/or requires a regular stream of income can invest in these bonds.