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To promote the trend of saving among
the people in India, the government has already started many schemes. Taking a
step further towards this scheme, the government has started floating rate bond
scheme from July 1, 2020. In fact, the Narendra Modi government has come up
with this scheme because the interest on deposit amount in banks and post
office has come down drastically and there was a need for a high-interest
deposit scheme to motivate people to save. Under this scheme, 7.15 per cent
interest will be given, which is much higher than banks and post offices.
Some key features of floating rate
bonds
1. Unlike general bonds that pay a
fixed rate of interest, floating rate bonds have a variable rate interest.
2. The floating rate bond's interest
rate is tied to a benchmark rate and is reset at regular time intervals.
3. The interest rate risk in floating
rate bonds is reduced to a great extent because these bonds will pay higher
returns when the prevailing rates are higher.
4. There is no certainty in the
future stream of income when invested in floating rate bonds.
5. The best time to buy floating rate
bonds is when interest rates are low and expected to rise.
Who can buy this bond? A person
residing in India, on the basis of his/her personal capacity, or on a joint
basis in a personal capacity, or on behalf of a minor as father/mother/legal
guardian, or Hindu undivided family.
Bond's maturity period? Any citizen
of India can invest in this scheme. After the issuance of these bonds, their
duration will be 7 years, however, interest will be paid every 6 months.
Interest on bonds purchased on July 1st will be paid on January 1st, ie the
first change will be on January 1, 2021. Senior citizens of certain categories
are allowed premature redemption.
Floating rate saving bonds can be
purchased for any amount but a minimum bond of Rs 1000 will have to be
purchased. After that, any bond can be purchased in a coefficient of Rs 1000.
That is, there will be no maximum investment limit in these bonds. But only up
to 20 thousand bonds can be purchased in cash.
Keep in mind that the person holding
this bond will have to pay tax because it is not a tax-saving bond, so tax will
be levied on the interest received on this bond. Tax will be charged according
to the income tax slab you will come across. Also, TDS will be applicable to
interest income.
If these bonds are giving high
returns then there are some restrictions with them like; These bonds cannot be
traded in the stock market, these bonds cannot be loaned from financial
institutions, banks and NBFCs etc. The good thing about these bonds is that the
bondholder can make someone the nominee of these bonds and the bonds will be
transferred to the nominee after the death of the bondholder.
Investors in these bonds can be
purchased from any government bank and some private banks. Private banks
include; ICICI Bank, Axis Bank, IDBI Bank, and HDFC Bank. For transparency, the
government has allowed the purchase of these bonds only in electronic form.
These bonds will be transferred to the investor ledger account as soon as the
floating bond is purchased. If investors want, they can also buy them with
maximum cash of Rs 20 thousand. Apart from this, these floating rate bonds can
also be purchased through check, draft and electronic payment mode.
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