Floating Rate Savings Bonds (FRSB)

This page provides all the details you need to know about the Floating Rate Savings Bonds, 2020 (FRSB) scheme.

 

Table of Contents

 

 

What is FRSB?

FRSB stands for Floating Rate Savings Bonds, 2020.

The Floating Rate Savings Bonds is a type of Bond in which the interest rate (coupon rate) will be revised by the Government every 6 months. So, the interest (coupon) amount you receive will also change every 6 months. Because of this reason, this bond got the name "Floating Rate".

This floating interest rate (coupon rate) is applicable for both old and new investors.

There is no cumulative (compounding) option in this bond. It means that the interest will not compound in this scheme. Only the interest payout option is available. So, you have to receive the interest every 6 months.

 

History of FRSB

Floating Rate Savings Bonds, 2020 was launched by the Government of India and it has been effective since 01-July-2020.

Earlier, there was a bond called "RBI 7.75% Savings Bonds". The Government has stopped issuing this bond on 28-May-2020. Instead, it came up with a new bond called Floating Rate Savings Bonds.

 

How does FRSB work?

  • Deposit a lump sum amount and purchase the bond

  • You'll receive the interest (coupon) amount every 6 months for the period of 7 years as per the floating interest rate (%) applicable from time to time

  • At the end of 7 years, you'll get your deposit amount back

 

Features

  • Backed by the Government of India

  • Safe investment option

  • Guaranteed returns (but returns may vary due to floating interest rate)

  • Regular half-yearly income

  • No maximum limit on the deposit amount

  • People of all the age groups can invest

  • Nomination facility

 

Income Tax Benefits

Income tax benefits will be same on both old and new tax systems.

No income tax benefits.

No tax deduction benefits for the deposit amount under Section 80C of Income Tax Act.

TDS (Tax Deducted at Source) is applicable. TDS will be deducted if the interest (coupon) earned from the Bond is more than Rs. 10,000 in a financial year.

If you want to avoid TDS, then you'll have to get the Exemption Certificate from the Income Tax department. Note that submitting self-declaration forms such as Form 15G or 15H won't help to avoid TDS.

The interest (coupon) amount received is taxable. During tax returns, you need to declare the interest income under "Income from Other Sources" and pay the income tax as per your income tax slab.

Capital Gains Tax (CGT) is not applicable for this bond as you can't sell them on the Secondary market (Share market).

 

Who can Purchase this Bond?

FRSB can be purchased by

  1. Resident Indians

  2. Hindu Undivided Family (HUF)

 

A resident Indian can purchase this bond

  • individually

  • jointly with others

  • on behalf of a minor of whom he is the legal guardian

 

NRI

NRI (Non Resident Indians) are not eligible to purchase this bond.

But, if a resident becomes NRI during the tenure of the Bond, then he can continue to hold the bond until maturity.

 

Where can you Purchase the Bond?

You can purchase the bond from the following Banks.

  • State Bank of India

  • Bank of Baroda (including Vijaya Bank and Dena Bank)

  • Bank of India

  • Bank of Maharashtra

  • Canara Bank (including Syndicate Bank)

  • Central Bank of India

  • Indian Bank (including Allahabad Bank)

  • Indian Overseas Bank

  • Punjab National Bank (including Oriental Bank of Commerce and United Bank of India)

  • Punjab & Sind Bank

  • Union Bank of India (including Andhra Bank and Corporation Bank)

  • UCO Bank

  • HDFC Bank

  • ICICI Bank

  • IDBI Bank

  • Axis Bank

 

How do you Purchase the Bond?

You can purchase the bond using

  • Cash (upto Rs. 20,000 only)

  • Demand Draft (DD)

  • Cheque

  • Online

 

When you purchase, the bond will be issued only in Demat form and it'll be held in an account called Bond Ledger Account (BLA).

For the proof of purchase, a "Certificate of Holding" will be given to the investor.

 

Deposit Limits

The minimum deposit amount is Rs. 1,000.

There is no limit on the maximum deposit amount. You can deposit as much as you can.

The deposit amount should be in multiples of Rs. 1,000.

 

Maturity Period

The maturity period of this bond is 7 years.

At the end of 7 years, the entire deposit amount will be given back to you.

 

Interest Rate (Coupon Rate) %

The current annual interest rate (coupon rate) is 7.15% and it is for the 6 months period from 01-Jul-2021 to 31-Dec-2021.

The interest rate of this bond will be revised every 6 months and it'll happen on 1st January and 1st July of every year.

So, the interest (coupon) amount for the 6 months period will be paid on 1st January and 1st July of every year. It means that irrespective of your start date of the bond, you'll receive the interest only on 1st January and 1st July of every year.

This floating interest rate (coupon rate) is applicable for both old and new investors. It means that the interest rate is not fixed for anyone. Every investor should go through the interest rate change cycles. 

There is no cumulative (compounding) option available in this bond. It means that the interest amount will not compound in this scheme. Only the interest payout option is available. So, you have to receive the interest every 6 months.

The revision of the interest rate will be 0.35% more than the interest rate of National Savings Certificate (NSC) scheme.

 

Interest Rates History

The interest rates history of FRSB bonds since inception is given below.

YearPeriodAnnual Interest Rate (%)
2021July 2021 to December 20217.15%
2021January 2021 to June 20217.15%
2020July 2020 to December 20207.15%

 

Compounding Frequency

Compound interest is not applicable in this scheme as there is no cumulative option available in this bond.

Only simple interest calculation is followed in this scheme.

 

Interest Credit Method

The half-yearly interest (coupon) amount from the bond will be paid directly to your Savings Bank (SB) account.

 

Pre-Mature Closure

Pre-mature closure is allowed only for those whose age is 60 years and above subject to the completion of the minimum lock-in period.

The minimum lock-in period varies for each age group as mentioned in the below table.

Age GroupMinimum Lock-in Period
60 to 70 years6 years from the date of issue
70 to 80 years5 years from the date of issue
80 years and above4 years from the date of issue

In case of joint account holders of the bond, any one person needs to fulfill the above conditions.

After fulfilling the above conditions, the eligible investor can surrender the bond at any time. But, the Government will process the request and pay you the interest (coupon) amount only on the interest payment dates. That is, 1st January and 1st July of every year.

For example, after fulfilling the above conditions, if you surrender the bond in the month of February, you still need to wait till 1st July to receive the final interest (coupon) amount.

There will be a penalty for pre-mature closure even after fulfilling the above conditions. The penalty amount is 50% of the last interest (coupon) amount.

 

What if You Die during the Term?

Unfortunately, if you die during the tenure of the bond, the bond will be transferred to your nominees or legal heirs.

The nominee should hold the bond till the early redemption period or till maturity.

 

Bond Transfer & Tradability

These bonds can't be transferred to another person.

Also, these bonds are not tradable in the secondary market (Share Market). It means that you can't buy or sell these bonds in the secondary market.

 

Loan Facility

There is no loan facility available in this bond.

Also, you can't use this bond as a collateral security to get loans from the Banks, Financial Institutions or Non-Banking Financial Companies (NBFC).

 

Nomination

Nomination facility is available in this bond.

You can nominate one or more people as your nominees. Also, you can change nominations at any time during the tenure of the bond.