Recently RBI has reduce interest rate and going by inflation figures there is all the possibility of further reduction of interest rate in near future by 2018. The rate of interest on fixed deposit of banks are reducing below 7% making them non attractive in terms of returns post tax.  Rate of interest on fixed instrument with government guarantee are at all-time low, considering that the only best option available right now is 8% RBI Bonds.

Why Invest in RBI Bonds?

It give guarantee interest income for next 6 years @ 8% which is payable 6 monthly. There is no limit on Investments and any entity can invest in Bonds. It is ideal product for Senior Citizen and even those who are depended on interest income. Further it is backed by government guarantee so principal amount is always protected and it is Risk free compared to other fixed instrument products. Individuals and Trust who have deposit above 1 Crore usually earns interest of less than 5% from Bank. Such entity can park funds in to RBI bonds to earn higher rate of interest.

What documents are required for investment in RBI Bonds?

1)  Signed form: Download Form for 8% RBI bonds

2) Pan Card

3) Aadhaar Card or Passport

4) And Cheque in Favour of “HDFC 8% Savings (Taxable) Bonds, 2003”

Who can invest in RBI Bond?

(I)an individual, not being a Non-Resident Indian -

(a) In his or her individual capacity, or

(b) In individual capacity on joint basis, or

(c) In individual capacity on anyone or survivor basis, or

(d) On behalf of a minor as father/mother/legal guardian

(ii) A Hindu Undivided Family.

(iii) (A)'Charitable Institution' to mean a Company registered under Section 25 of the Indian Companies Act 1956 or

(b) An institution which has obtained a Certificate of Registration as a charitable institution in accordance with a law in force; or

(c)Any institution which has obtained a certificate from Income Tax Authority for the purposes of Section 80G of the Income Tax Act, 1961.

(iv) 'University' means a university established or incorporated by a Central, State or Provincial Act, and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a university for the purposes of that Act.

Limit of Investment:

There will be no maximum limit for investment in the Bonds.

Tax Treatment:

Interest on the Bonds will be taxable under the Income-Tax Act, 1961 as applicable according to the relevant tax status of the bond holder.

Interest:

(I) The bond will be issued in cumulative and non-cumulative form, at the option of the investor.

(ii) The Bond will bear interest at the rate of 8% per annum. Interest on non-cumulative bonds will be payable at half-yearly intervals from the date of issue in terms of paragraph 7 above. Interest on cumulative bonds will be compounded with half-yearly rests and will be payable on maturity along with the principal. In the latter case, the maturity value of the Bonds shall be Rs.1601/- (being principal and interest) for every Rs1000/-(Nominal). 

Nomination

A proprietor holder or a sole surviving holder of a Bond, being an individual, may nominate in or as near thereto as may be, one or more persons who shall be entitled to the Bond and the payment thereon in the event of his/her death.

Features in tabular form

Item

8%Saving (Taxable )Bonds,2003

Remarks

1)Category of Investor

Individual

HUF

University

Charitable Institution

Non resident Indians are not eligible to invest in these bonds

2)Limit of investment

Minimum Rs 1000/- and in multiples of Rs 1000/-

No maximum limit

3)Date of issue of Bonds

Date of receipt of subscription in cash or date of realization of cheque /draft

 

4) Form of Bonds

Bond Ledger Account

 

5)Option

Non-cumulative /cumulative

Change of option is not permitted

6)Interest

In case of non-cumulative option , interest is payable on behalf yearly basis .in case of cumulative option ,interest is payable at the time of maturity

Half –yearly interest is payable on 1st February/1st August

7)Post Maturity Interest

Post maturity interest is not payable

 

8)Bank Account

It is mandatory for the investors to provide bank account details to facilitate payment of interest /maturity value

 

9)Tax benefit

Income from the bonds is taxable. Wealth is exempted.

Tax will be deducted at source while interest is paid

10) Nomination Facility

The sole Holder or all the joint holders may nominate one or more persons as nominee

Non-Resident Indians can also be nominated. However, remittance of the interest/maturity proceeds will be subject to the foreign Exchange regulations prevailing at the time of remittance

11) Maturity period

After 6 years

 

12) Premature redemption

Facility is available to the eligible investors as per the Govt. Notification dated July 29, 2013 and subsequent amendment vide Notification dated August 16, 2013

 

13) Transferability

The bonds are not tradable in the secondary market. However, the Bonds shall be eligible as collateral for loans.

 

14)Loans from banks against the security of these Savings bonds

The holders of the said bonds shall be entitled to create pledge, hypothecation or lien in favors of scheduled bank for loans against the security of the bonds.

 

15)Application forms

Available at designated branches of SBI and Associate banks,18 Nationalized banks, 3 Private Sector banks and Stock Holding Corporation of India Ltd.

 

 

In case of any query you may contact manishtervankar@gmail.com or call him at 8424949136

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CA Chirag Chauhan

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    I hope by reading this article you got enlighten on ,Why it is right time to invest and switch to 8% RBI Bonds?further to mention before taken any financial decision based on this content it is prefered to take an expert opinion as matter can be subjective.