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RBI 7.75% Savings Bonds

  • Tejesh Kumar
  • Feb 07 2022
  • 7 minutes
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What are RBI 7.75% savings bonds?

Investors have an array of options to include in their portfolio based on their risk appetite and returns expectations. Some of these options can be high risk high returns investments while others can be of lower risk but can provide more or less stable returns. RBI 7.75% savings bonds fall under the risk-free investment category as they are issued by RBI on behalf of the Government. These bonds are issued by RBI with effect from January 2018 with a maximum maturity period of 7 years. The interest received on these bonds is taxable in the hands of the investor. 

Given below are the basic details of these bonds issued by RBI. 

Who are the target investors for RBI 7.75% savings bonds?

RBI 7.75% Savings Bonds are risk-free bonds that are ideal for new investors or investors that aim for regular and stable returns without exposing themselves to substantial risks. The government has notified the eligible persons that can invest in these bonds as per a notification issued in this regard. Some of the eligible investors that can invest in RBI 7.75% Savings Bonds are mentioned below.

  1. An individual who is not a Non-Resident Indian can invest in these bonds in any of the following ways,
    1. In individual capacity 
    2. In an individual capacity on a joint basis
    3. In an individual capacity on anyone or survivor basis
    4. Being a parent / legal guardian and investing on behalf of a minor.
  2. Hindu Undivided Family (HUF)

What are the highlights of the RBI 7.75% savings bond?

The highlights of the RBI 7.75% savings bonds are mentioned below.

1. Risk

These bonds are issued by the RBI and are backed by the Government of India. Therefore, the investment in these bonds is completely risk-free. The initial investment of the investor and the interest earned during the tenure of the investment is completely safe without any risk of dilution 

2. Returns

The returns on the RBI 7.75% savings bonds are in the form of interest that is payable or credited on a half-yearly basis. The bonds are issued in cumulative and non-cumulative forms. The interest on non-cumulative bonds is payable to the investors on a half-yearly basis from the date of issue for the period ending 31st July and 31st January on 1st August and 1st February respectively. In the case of cumulative bonds, the half-yearly interest will be compounded and credited to the investor’s account and will be payable to the investor at the time of maturity of the bond.

3. Taxation

The interest earned on the RBI bonds is taxable in the hands of the investors as per the applicable slab rates of the investor. These bonds are also exempt from wealth tax under the Wealth Tax Act 1957. The interest on these bonds is also subject to TDS rules where the TDS has to be deducted at the applicable TDS rate before making the payment to the investor. However, if the taxpayer has obtained an exemption under any relevant provision of the Income Tax Act, 1961, they are exempted from the deduction of TDS. 

4. Lock-in limitations

These bonds come with a tenure of 7 years. Investors cannot redeem their investment in these bonds only after the completion of the tenure. 

5. Withdrawals

Investors of 60 years and above are allowed to withdraw their investment before the completion of maturity based on certain conditions. These conditions are mentioned hereunder.

  1. The Lock-in period for investors in the age bracket of 60 to 70 years shall be 6 years from the date of issue
  2. The Lock-in period for investors in the age bracket of 70 to 80 years shall be 5 years from the date of issue
  3. The Lock-in period for investors in the age of 80 years and above shall be 4 years from the date of issue

6. Inflation Protection

These bonds do not provide inflation-protected returns. 

Overview

Feature Description
Eligibility Any resident Indian and HUF
Entry ageNo Specific age limit
Minimum and Maximum investmentThe minimum investment is Rs. 1,000 (continued with multiples of Rs. 100)
No maximum limit of investment.
Interest 7.75% per annum
Tenure7 years
Exit option Premature withdrawal allowed subject to conditions 
Nomination FacilityAvailable by making an application through Form B
Account Holding CategoriesThe conditions for starting an investment under this scheme are,It can be opened by a single adultJoint accounts are permitted A parent or a legal guardian can start this investment on behalf of a minor

How to invest in RBI 7.75% savings funds?

RBI 7.75% savings bonds were issued by the government as a risk-free investment option. However, in line with the recent rate cuts on various government schemes like PPF, Sukanya Samriddhi Yojana, etc. as well as a rate cut in the bank deposits and savings accounts, RBI has decided to withdraw these bonds effective from the close of banking business on 28th May 2020.

These bonds are no longer available under a fresh issue. However, the closure of the bonds does not imply redeeming them before maturity. The investors who have acquired the bonds before the closure date can continue to hold them till maturity subject to withdrawal in the above-mentioned conditions. 

In place of the RBI 7.75% Savings Bonds, the government has issued Floating Rate Savings Bonds 2020 (Taxable) with an interest rate of 7.15% per annum. These bonds are similar to the former bonds issued by the government in terms of tenure, taxation, and withdrawal conditions. 

Investment in these bonds can be done in cash (up to Rs. 20,000) or through Demand draft, cheques, or an electronic mode as acceptable by the Receiving Office. The application for these bonds can be received in the Bond Ledger account at the designated branches of the following banks,

  • SBI
  • Nationalized Banks
  • IDBI Bank
  • Axis Bank
  • HDFC Bank
  • ICICI Bank

The issuing bank will issue these bonds in an electronic form which will be held in the credit account of the investor under the Bond Ledger Account which is opened with the Receiving Office. 

Conclusion 

RBI 7.75% Savings Bonds provided a risk-free investment opportunity to all eligible investors and was a good option to be included in any portfolio. The interest on these bonds although taxable, the post-tax returns on this investment were higher than traditional investment options like bank deposits and savings accounts, especially for small taxpayers. 

FAQs

What were the available investment options under the RBI 7.75% savings bonds?

Investors would invest in the RBI 7.75% savings bond in the cumulative or non-cumulative option

When was the investment under these bonds closed?

Fresh investment under RBI 7.75% savings bonds was closed along with the closure of the banking business on the 28th of May 2020

 Is the interest on these bonds taxable?

Yes. Interest on these bonds is taxable in the hands of the investors at the applicable slab rates

Are RBI 7.75% savings bonds transferable?

No. RBI 7.75% savings bonds are not transferable but can be passed on to the nominee or the legal heir of the investor upon their death

Can RBI 7.75% savings bonds be traded in the secondary market or be used as collateral?

No. The guidelines of the bond expressly restrict it from being traded on the secondary market or be used as collateral for loans from any banks, financial institutions, or NBFCs

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