Now you can invest in Floating Rate Savings Bonds via RBI's retail direct portal

In a move aimed at broadening investment opportunities for individual investors, the Reserve Bank of India (RBI) has expanded the range of products available through its Retail Direct Portal. The latest addition to the basket of investment options is Floating Rate Savings Bonds (FRBs), 2020 (taxable).

Until recently, these bonds were exclusively accessible at select branches of the State Bank of India, nationalised banks, private sector banks authorised by the RBI, and other entities designated by the Reserve Bank of India, following the government's guidelines on floating rate bonds released in June 2020.

According to an RBI circular dated October 23, 2023, retail investors can now access a more diverse spectrum of investment instruments through the Retail Direct Portal. This development comes after the Reserve Bank of India, in collaboration with the Government of India, permitted subscription to Floating Rate Savings Bonds, 2020 (Taxable) – also known as FRSB 2020 (T).

Previously, the Retail Direct Portal allowed retail investors to invest in central government securities, treasury bills, state government securities, and sovereign gold bonds.

Investors can now subscribe to these bonds using various methods, including cash (up to ₹20,000 only), drafts, cheques, or electronic modes.

FRSBs are interest-bearing bonds issued by the central government. They are non-tradeable and mature after seven years from the date of issue.

What sets them apart from traditional bonds is their variable coupon rate, which is reset at predetermined intervals. In essence, the interest rate on these bonds fluctuates throughout their tenure.

In its July review, the RBI increased the interest rate on its floating rate savings bonds (2020) from 7.35% to 8.05%, valid until June 30, 2023. Notably, the interest rate on RBI savings bonds carries a 0.35% premium over the National Savings Certificate (NSC) interest rate. Any adjustments in the NSC interest rate are mirrored in the interest rate offered on RBI savings bonds.

Interest earnings from RBI FRSBs are classified as taxable income and are subject to taxes in accordance with the Income Tax Act of 1961, based on the applicable income tax slab for the investor.

Moreover, these bonds are eligible for Tax Deducted at Source (TDS) when interest payments are made. If investors are eligible for any exemptions, they must declare them in the application form.

Notably, RBI FRSBs are exempt from wealth tax under the Wealth Tax Act of 1957, although there are no deductions available on the principal investment.