Context:
With bank fixed deposit (FD) rates softening after the RBI’s recent rate cuts, investors are exploring safer alternatives for higher returns. One such instrument is the RBI’s Floating Rate Savings Bond (FRSB), which currently offers 8.05% per annum and is backed by the Government of India.
RBI Floating Rate Savings Bond (FRSB):
- A government savings instrument issued by the Reserve Bank of India (RBI) on behalf of the Government of India.
- Launched: July 1, 2020 (replacing the 7.75% Savings (Taxable) Bonds, 2018).
- Known as a safe, risk-free investment since it is backed by the Government of India.
Key Features:
1. Interest Rate (Floating)
- The interest rate is linked to the prevailing National Savings Certificate (NSC) rate + 0.35%.
- Reset every 6 months (January 1 and July 1).
- Current interest rate (as of July 1, 2025): 8.05% (7.70% NSC rate + 0.35%).
- Interest is taxable, but no TDS is deducted.
2. Tenure
- 7 years fixed maturity.
- No premature withdrawal for general investors.
- Exceptions: Senior citizens (age-based lock-in):
- Age 60–70: 6 years
- Age 70–80: 5 years
- Above 80: 4 years
3. Investment Details
- Minimum investment: â‚ą1,000 (and in multiples of â‚ą1,000).
- No maximum limit (unlike many other small savings schemes).
- Can be held in demat or bond ledger account at RBI or designated banks.
4. Payment of Interest
- Interest is paid semi-annually (January 1 and July 1).
- Payment is credited directly to the investor’s bank account.
5. Taxation
- Fully taxable under the Income Tax Act.
- Interest income must be declared as “Income from Other Sources”.
- No TDS, but the investor has to pay tax as per their slab.
6. Security
- 100% backed by Government of India → zero default risk.
- Ideal for conservative investors looking for guaranteed income.
Why is it important?
- Provides a safe alternative to fixed deposits, especially for senior citizens.
- Protects against falling interest rates, since it floats with NSC rate.
- Acts as a stable, long-term investment with regular income.
