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GOI Savings (Taxable) Bonds: An Alternative To Fixed Deposits

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Interest rates on bank fixed deposits have been falling for over a year now. The declining interest rates call for the need to look at alternative venues to make higher returns that are also safe.

The 7.75% GOI Savings (Taxable) Bonds can be an attractive alternative to an FD if you are willing to hold on for a period of seven years.

Govt Savings (Taxable) Bonds: An Alternative To Fixed Deposits
 

What are 7.75% GOI Savings Bonds?

The Reserve Bank of India (RBI) on behalf of the Government of India (GoI) issues bonds popularly known as GOI Savings Bonds. Their biggest advantage is that since they are issued by the government, their payment on maturity is guaranteed.

Interest

As the name suggests, these bear interest at the rate of 7.75 percent.

These can be bought with two options- cumulative and non-cumulative.

In the cumulative mode, you will receive Rs 1,703 at the end of 7 years on maturity for every Rs 1,000 invested. In case of non-cumulative mode, interest is paid half-yearly, that is, on 1 August and 1 February of every year.

Minimum and maximum investment

These bonds are issued for a minimum of Rs 1,000 (face value) and its multiples, thereof.

There is no maximum limit on investment.

Tenure

7 years

Taxes

Interest earned on the bonds is fully taxable. It is clubbed with the total taxable income of the investor and taxed as per his/her tax slab.

TDS (tax deducted at source) will be applicable on the interest credited to your bank account, based on the prevailing income tax rules.

Limitations

These GOI Savings Bonds cannot be traded in the secondary market and are not eligible to be used as collateral for loans. These are also not transferable.

Pre-mature withdrawal is only allowed for senior citizens after completion of a minimum lock-in period of-

  • 6 years for 60-70 year old investors
  • 5 years for 70-80 year old investors
  • 4 years for over 80-year-old investors

Eligibility

Residents individuals and HUFs can invest in RBI-GOI 7.75% Savings Bonds. These can be invested at individual capacity, jointly, survivor basis or on behalf of a minor.

 

A nomination facility is also available.

Requirements

  • Bank account
  • PAN
  • Aadhaar
  • One cancelled cheque copy
  • Birth certificate in case of application on behalf of a minor

How to apply?

One can apply for the 7.75% GOI Savings Bonds at any Nationalised Bank and select private banks like HDFC Bank, ICICI Bank, Axis Bank.

Are they better than Fixed Deposits?

At present, a fixed deposit at a nationalised bank will not fetch you more than 7 percent. Interest on FDs are also taxable beyond a limit.

You can apply for government savings bonds it at any given time of the year, however, the RBI may choose to revise the interest rates it offers. The last revision was made in January 2018, when interest rates on these savings bonds were lowered to 7.75% from 8%.

If you opt for the new tax regime, you can consider 7-year GOI Savings Bonds as one of the options that provide guaranteed income after a fixed period. For example, the tax benefits that you will get on 15-year PPF or 5-year NSC under section 80C will not be applicable under the new tax regime, helping you choose better on your instrument of investment based on tenure and interest rate rather than tax-benefits.

However, these are only suitable for funds you are willing to lock-in for a period of 7 years. As the minimum investment amount is small, you can choose to invest more at intervals for half-yearly interest income.

Disclaimer

The article is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.

About the author

Olga Robert has been covering equity markets and personal finance for over two years.

Story first published: Tuesday, February 25, 2020, 18:11 [IST]
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