RBI bonds- The safest investment in 2024?

With markets fluctuating like never before, retail investors are faced with a serious challenge of choosing a safe and stable return yielding scheme to plant-in their hard-earned money. Thus, an investor is tasked with carefully identifying a viable option from the existing low-risk investment plans in India to counter the inevitable risks that exist in the investment domain. However, when it comes to safety and stability, there is an option that stands out from the rest.

Backed by the government, RBI bonds offer both stability and safety to investors. Also known as Savings bonds, these are primarily aimed at retail investors who are in search of a secure investment option with fixed returns. In this article, we will touch up on the various types of RBI bonds, their features and everything you need to know before investing in one.

Types of RBI bonds:

Floating Rate Savings Bonds (FRSB):

• These bonds offer a floating interest rate that is reset every six months based on the prevailing yields of government securities.
• The minimum investment amount is INR 1,000 and multiples thereof.
• The maturity period is six years, with an option to extend the maturity for another three years.

Retail Direct Savings Bonds (RDSB):

• These bonds are issued through RBI’s Retail Direct platform and can be purchased online by individual investors.
• RDSB offer a fixed rate of interest for the entire maturity period.
• The minimum investment amount is INR 1,000 and multiples thereof.
• The maturity period is 1, 2, or 3 years.

Fixed Rate Bonds: 

These bonds offer a fixed interest rate for the entire tenure of the bond. They provide stability and predictable returns, making them suitable for investors seeking predictable income streams.

Inflation-Indexed Bonds:

These bonds offer returns that adjust with inflation, ensuring that the real value of your investment remains intact. They are suitable for investors who want to protect their investments from the effects of inflation.

Other Types of Bonds:

RBI may also offer other types of bonds, such as

• Government Securities (G-Secs): These bonds are issued by the government and offer a fixed rate of interest.
• Treasury Bills (T-Bills): These are short-term debt instruments issued by the government, with maturities ranging from 91 days to 364 days.

Why should you choose an RBI bond?

Apart from being a safe financial instrument, an RBI bond investment holds several other ‘cherries’ on the top that make it more attractive. Here are some key aspects that make it a better investment option:

1. Safe and sound: RBI bonds are issued and guaranteed by the Reserve Bank of India, making them a safe investment option for investors.
2. Interesting interests: These bonds offer a fixed interest rate over the tenure of the bond, aiding in a stable and predictable return for your valuable investments.
3. Flexible tenures: RBI bonds come with different tenure options, ranging from a few years to longer durations.
4. Unaffected by markets: While RBI bonds generally come with a fixed tenure, they may also hold the feature of premature withdrawal under certain circumstances.
5. Liquidity: RBI bonds are not subject to market fluctuations as they are issued and backed by the central bank.

Eligibility Criteria for RBI bonds:

RBI Bonds are open to investment to almost all individuals residing in India. With investments starting from as low as ₹1000, these are also accessible to the wide diversity that the country upholds. However, in most cases, NRIs are not eligible to make investments in these bonds.

Eligibility for RBI Bonds is generally straightforward:

• Indian Residents: All Indian citizens and residents can invest in RBI Bonds.
• Age Limits: There are no age restrictions for investing in RBI Bonds.
• Minimum Investment: The minimum investment amount varies depending on the type of bond.

However, specific requirements may apply depending on the type of bond. For instance, investment in RDSB is only possible through RBI’s Retail Direct platform.

Tax Implications:

Interest income from RBI Bonds is taxable:

• Tax Rate: The interest earned on RBI Bonds is added to your total income and taxed according to your applicable tax slab.
• TDS: Tax Deducted at Source (TDS) is applicable on interest earned exceeding a certain threshold. The TDS rate is currently 10% for interest exceeding INR 40,000 in a financial year.
• Deduction Under Section 80C: You can claim a deduction of up to INR 1.5 lakh for investments in RBI Bonds under Section 80C of the Income Tax Act.

How to Invest in RBI Bonds:

You can invest in RBI Bonds through the following methods:

• Directly through RBI: RBI offers an online platform called Retail Direct where investors can buy and sell government securities, including RBI Bonds.
• Through Banks: You can also invest in RBI Bonds through authorized banks. These banks will have a dedicated section on their website or in their branches where you can apply for RBI Bonds.

Benefits of Investing in RBI Bonds:

• Safety and Security: RBI Bonds are backed by the government of India, making them one of the safest investment options.
• Fixed Interest Rate: RBI Bonds offer a fixed rate of interest, providing investors with predictable income.
• Tax Efficiency: You can claim deductions on the interest earned under Section 80C of the Income Tax Act.
• Easy Liquidity: You can sell your RBI Bonds in the secondary market if you need to access your funds before maturity.

Risks of Investing in RBI Bonds:

• Inflation Risk: If the rate of inflation rises faster than the interest rate offered by RBI Bonds, the real return on your investment may decline.
• Interest Rate Risk: Changes in interest rates may affect the market value of your RBI Bonds.
• Credit Risk: While the risk is minimal due to the government backing, there is a theoretical risk of default if the government faces a severe financial crisis.

Comparison with Other Investment Options:

Comparison with Other Investment Options

RBI Bonds provide a secure and stable investment opportunity, especially when compared to higher-risk options like equities and real estate. However, their returns tend to be lower than those offered by riskier investments. Below is a comparison of RBI Bonds with other popular investment choices:

Conclusion:

If stability and security are your top priorities in scaling an investment horizon in India, RBI bonds come out as the most practical option for you. Highly liquid, flexible and with fixed interest rates, RBI funds act as a safe financial instrument in the era of risk dwelling investments. If you are looking for safe and risk-free investments, head over to Tap Invest and choose from a variety of curated plans that offer stable and swift returns. Explore now!

FAQs On RBI Bonds Investment:

1. What is the tenure of an RBI bond?

The tenure of RBI bonds varies depending on the type of bond. It can range from a few years to over a decade. For example, Sovereign Gold Bonds have a tenure of 8 years, while Relief Bonds have a tenure of 5 to 10 years.

2. Who can invest in an RBI bond?

RBI bonds are open to both individuals and institutional investors. Resident Indians, Hindu Undivided Families (HUFs), trusts, and charitable institutions are eligible to invest in these bonds.

3. What is the maximum investment in RBI bonds?

The minimum and maximum investment amounts vary depending on the type of RBI bond. For example, the minimum investment in Sovereign Gold Bonds is 1 gram of gold, while for other bonds, it could range from ₹1,000 to ₹10,000.

4. Are RBI bonds risk-free?

RBI bonds are considered relatively safe investments as they are backed by the Government of India. However, like any investment, they carry some level of risk, such as interest rate risk and inflation risk.