How to Buy RBI Bonds?

What happens when the government lacks the funds it needs for its projects? Does it take funds from the general public? If yes, how? What does the public get in return? Why will the general public provide funds to the government? This article focuses on answering these questions.

The Government of India borrows funds from the public to finance its various projects. To borrow these funds, the government issues bonds to the public. The government issues different types of bonds with financing its different project needs. In return, the public gets a guaranteed interest from the government.

What are RBI Bonds

RBI Bonds were introduced in 2003. These bonds were issued to the public to raise money to fund government projects. They are also known as the Government of India Savings (Taxable) Bonds or Floating Rate Savings Bonds. It is one of the safest investment options available in India and offers a fixed rate of return. Several types of RBI bonds are available in the Indian market, such as savings bonds, taxable bonds, capital gains bonds, and floating rate bonds, each with its own features and benefits. These bonds can be purchased by individuals, trusts, and institutions and can be held in demat or physical form.

Features of RBI Bonds

1. Minimum Investment- Minimum investment in RBI Bonds is ₹1,000 or multiples of ₹1,000. At the same time, there is no set upper limit for maximum investment. 

2. Interest rate – 

• Nature- The nature of the interest rate of RBI bonds is floating. It is paid semi-annually, i.e., every six months of the year (January and July). 

• Rate- The RBI Floating Rate Bonds have an interest rate that resets every six months. 

• The first reset occurred on January 1st, 2021, when the benchmarked National Saving Certificate (NSC) rate was 6.8%. For the period between January 1st, 2021 and June 30th, 2021, the interest rate for the RBI Floating Rate Bonds was set at 35 basis points above the NSC rate. As a result, these bonds earned a return of 7.15%, which was 0.35% higher than the NSC rate of 6.8%.
• On July 1st, 2021, the NSC rate remained at 6.8%, and the interest rate for the RBI Floating Rate Bonds for the period of July 1st, 2021 to December 31st, 2021, was once again set at 35 basis points above the NSC rate. This meant that these bonds earned a return of 7.15%, which was again 0.35% higher than the NSC rate.
• On July 1st, 2022, the NSC rate remained at 6.8%, and the interest rate for the RBI Floating Rate Bonds for the period of July 1st, 2022 to December 31st, 2022, will be 7.15%. 
• The rate of interest on NSC has been revised to 7.00% for the fourth quarter of FY 2022-23, Accordingly, the interest rate for RBI floating bond from January 1, 2023 to June 30, 2023 and payable on July 1, 2023 has been reset at 7.35%.
• The NSC interest rate was increased to 7.7% for the April-June 2023 quarter therefore the RBI Floating rate Bonds for the period between July 1 2023 to December 31st 2023 has been set at 8.05%.

• Base rate- The interest rate on RBI bonds is linked to the interest rate of the National Savings Certificate (NSC) with a spread of 35 basis points on the NSC interest rate. 

• Payment options- Interest on these bonds can be paid in Cumulative and Non-Cumulative methods. In cumulative, interest on these bonds keeps adding to the deposit amount and will be paid in a lump sum on its maturity. In non-cumulative, bond interest will be paid regularly throughout the bond term. 

3. Maturity period- RBI Bonds have a maturity period of 7 years. The bonds have a 7-year lock-in period from the date of issuance. However, premature redemption is allowed in specified  categories of senior citizens. 

4. Bonds holding mode– RBI bonds are held in electronic format. RBI will open a Bond ledger account for the applicant and issue a physical certificate to the applicant.  

5. Loan facility- RBI bonds cannot be used as collateral to borrow loans. No loan facility is available on these bonds.  

6. Tradability- RBI bonds cannot be traded in the secondary market. 

7. Transferability- The ownership of RBI bonds is not transferable. However, in case of the applicant’s death, it will be transferred to the nominee nominated by the applicant at the time of issuance of the bond. 

8. Issue price- RBI bonds are issued at par or their face value without discount or premium. 

9. Tax treatment- The income from RBI bonds are taxable. TDS is deducted at the source when the interest is paid.  

Eligibility of RBI Bonds  

The following are eligible to invest in RBI Bonds- 

1. An individual resident is allowed to invest in RBI Bonds. Resident individuals can invest either-

• in their own capacity 
• on a joint capacity basis 
• on a survivor basis, or,
• on behalf of a minor as a father/mother/guardian of the minor.  

2. A Hindu Undivided Family (HUF) can invest in RBI Bonds. 

Note- Non-Resident Indians (NRIs) cannot invest in RBI Bonds. 

Pros of RBI Bonds

Investors find RBI bonds an advantageous investment option. The following are the benefits of investing in these bonds- 

• No risk factor- RBI bonds or Floating Rate savings Bonds are risk-free investment options as the Government of India issues these. So these bonds are safe and secure to invest in. 

• Guaranteed interest– Investors get a guaranteed interest on these bonds. Regular and fixed interest earning makes the bonds an attractive investment option. 

• Floating rate system of interest- Interest on these bonds is paid according to the interest of NSC. If the interest is paid based on the market interest rate, it will be advantageous to investors as they can expect higher rates when the market rate is high. 

Cons of RBI bonds

• Floating interest rate– Despite a fixed interest rate, RBI bonds have a floating interest rate, which means the rates keep changing semi-annually. So, there is a risk to the investor when the rate declines. 

• Liquidity issue- Since RBI bonds do not offer premature redemption to all investors, it is unsuitable for investors who prefer instant liquidity. 

• No collateral for loans- RBI bonds are not eligible as collateral for availing  loans. 

Documents required to invest in RBI Bonds

For individual investors- 

• Duly filled bond application form. 
• PAN card. 
• Address proof as in an Aadhaar card or Passport.
• Cancelled cheque of the bank account.

For HUF- 

• Duly filled bond application form. 
• HUF’s pan card
• HUF’s address proof
• Cancelled cheque of the bank account.
• List of HUF’s coparceners with the signature of Karta. 

For minors-

• Duly filled bond application form by the parents or guardian of the minor.
• PAN card of the minor/guardian.
• Address proof of the minor/guardian. 
• The guardian signed the minor’s birth certificate. 
• Cancelled cheque of the bank account.

Premature withdrawal of RBI Bonds

Premature redemption or premature withdrawal means to take an exit from the bond before its maturity date. RBI bonds offer premature withdrawal options. 

For senior citizens- Senior citizens are allowed to take premature redemption as per their age groups- 

Penalty for premature withdrawal 

The 50% of the interest due and payable since the past 6 months of the holding will be recovered in case of premature withdrawal. 

Where to buy RBI Bonds

The Reserve Bank of India(RBI) Bonds can be bought from the specified banks and the Stock Holding Corporation of India(SHCI). Here is the list of the designated banks and SHCI- 

• Bank of Baroda (Including Vijaya Bank and Dena Bank)
• State Bank of India
• Canara Bank of India
• Canara Bank (including Syndicate Bank)
• UCO Bank
• Indian Overseas Bank
• Indian Bank (Including Allahabad Bank)
• Union Bank of India (including Andhra Bank and Corporation Bank)
• Punjab National Bank (including Oriental Bank of Commerce and United Bank of India)
• Punjab & Sind Bank
• Bank of India
• Bank of Maharashtra
• HDFC Bank Ltd.
• ICICI Bank Ltd.
• IDBI Bank Ltd.
• Axis Bank Ltd.
• Stock Holding Corporation of India
• RBI RDG Account

Steps to Buy RBI Bonds Online

Online procedure- 

1. Login to the RBI Retail Direct Online Portal or any of the listed bank’s net banking facilities. 
2. Select ‘transact’ from the drop-down menu.
3. Enter the ‘Invest in RBI Bonds’ tab.
4. Fill in the required details in the application form, including the name, Date of birth, other personal details, investment amount, option for interest payment, bank account details etc. 
5. Upload the necessary documents such as address proof, identity proof, cancelled cheque, PAN number and other documents as required. 
6. Check the terms and conditions and authorise using the OTP. 
7. Pay the investment amount either through cheque or electronic mode. 
8. Click on Continue and then Submit the form. 
9. After the successful submission, the applicant will receive a physical certificate of bond holding from the RBI or the agency bank. 
10. The bonds will be held in electronic format in the Bond Ledger Account(BLA) with the RBI or agency bank. 

Offline Procedure to Buy RBI Bonds

Offline procedure- 

1. Visit any one of the above-listed banks of SCHI. 
2. Take the RBI Bond application form.
3. Fill out the form mentioning the applicant’s personal details and other details such as investment amount, bank account details etc.
4. Attach the necessary documents such as address proof, identity proof, cancelled cheque, PAN number and other documents as required. 
5. Pay the investment amount through cash, cheque, draft or electronic mode.
6. Submit the form. 
7. After the successful submission, the applicant will receive a physical certificate of bond holding from the RBI or the agency bank. 
8. The bonds will be electronically held in the Bond Ledger Account(BLA) with the RBI or agency bank. 

Conclusion

RBI bonds, also known as Government of India Savings (Taxable) Bonds or Floating Rate Savings Bonds, are 7-year fixed-term bonds issued by the Reserve Bank of India. These bonds offer a guaranteed interest rate paid semi-annually twice a year. Investors can invest in these offline and online bonds from the designated banks and the Stock Holding Corporation of India. These bonds are issued at face value with a minimum investment of ₹1,000 or multiples of ₹1,000. The bonds are held electronically in the bank’s BLA. Being backed by the government, these bonds offer huge security to investors. 

Frequently Asked Questions (FAQs)