The 7% Savings Bonds is the latest fixed income product to be introduced in the market. The fact that the Reserve Bank of India (RBI) is the issuing authority is the cause of some interest.
With the introduction of the Savings Bond, there is confusion in the mind of the retail investor vis-à-vis the exiting RBI Relief Bond. Over here we have tried to answer some of the questions uppermost in the minds of investors.
Relief Bonds for a long time were one of the favorite investments with the retail investors as they were tax free, offered a good return of return combined with the highest safety. However, in the latest budget the rates on these bonds were reduced to 8% p.a. and a maximum investment cap of Rs 200,000 (Rs 2 Lakhs) p.a. was imposed.
To absorb the demand for RBI Bonds, recently, the finance minister Mr Jaswant Singh announced the 7% Savings Bond. This bond will be totally independent of the 8% Relief Bond. So now there are two investments available in the market, one is the 7% Savings Bond and the other is the 8% Relief Bond. Below we have outlined the features of both the bonds and how do they compare with each other:
How do they stack up…
| Particulars |
7% Savings Bonds |
8% Relief Bonds |
| Interest Rate |
7% p.a. |
8% p.a. |
| Tenure |
6 years |
5 years |
| Minimim Invt. (Rs) |
1000 |
1000 |
| Maximim Invt. (Rs) |
No limit |
200,000 p.a. |
| Interest Payable |
Half Yrly/ Cumulative |
Half Yrly/ Cumulative |
| Tax Benefit |
Tax free |
Tax free |
| Tradability against Bonds |
Not tradable |
Tradable |
| Loans against Bonds |
Unavailable |
Available |
| Transferability |
Transferable only to relatives |
Transferable to anyone |
| NRI Investment |
Unavailable |
Available |
| Retirement money |
Investible |
No limit if invested within
3 months of retirement |
In addition to the changes highlighted in the table above, there are some other changes, which investors need to make a note of:
NRI Investment:
A Non-Resident Indian (NRI) cannot invest in the Savings Bond whereas he can invest in a Relief Bond upto the maximum permissible limit.
Tradability/Transferability:
Unlike Relief Bonds, which can be are tradable in the secondary market, Savings Bond cannot be traded in the secondary market. Relief Bonds are also transferable to anyone by execution of a transfer form; however, savings bonds can be transferred only by way of a gift to relatives to whom the holder has a blood relation.
Loans and Advances:
Savings Bonds are not eligible for collateral for loans from banks, financial institutions etc. whereas Relief Bonds can be advanced as collateral with banks etc. to obtain loans and advances.
Retirement money:
As per the current provision a retiring employee can still invest his money in the Relief Bonds without any maximum limit within three months on the receipt of the retirement proceeds. The Savings Bond (which do not have a ceiling on investment) is a good avenue for retirees who cannot invest in Relief Bonds if they have exhausted the three months period.
With the RBI’s commitment towards a softer interest rate regime, investors should look at investing over the long term and locking the rate of return (at 7%) on the Savings Bond. Like its predecessor – the Relief Bond, the Savings Bond offers an ideal mix of return and safety with tax-free returns. This should make it an obvious investment option for investors.
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