What is Interest Rate on RBI Floating Rate Bonds 2023?

What is the current interest rate of RBI Floating Rate Bonds or FRSB 2020 (T)?

The current or latest interest rate (2023) on RBI Floating Rate Bonds is 7.35% per annum. There is a fixed formula for calculation of RBI Floating Savings Rate Bond (FRSB) interest rate. The interest rate is linked/pegged with the prevailing National Saving Certificate (NSC) rate with a spread of (+) 35 basis points or 0.35% over the respective NSC rate.

The current NSC rates have been set at 7.00% in December-2022 (details here). Adding the +35 basis points spread, we get 7.35%, which will be the interest rate on RBI Floating Rate Savings Bonds. So that is how RBI Floating interest is calculated.

The interest rates of these bonds are reset every 6 months, and this is the reason why these are called as floating-rate bonds. The interest rate, floats. You don’t get a fixed interest for the entire duration of the bonds. You don’t lock-in the bond rates until maturity. The bond rates will float and can change every 6 months depending on NSC interest rates change.

Read More – RBI on Floating Rate Savings Bonds FRSB 2020(T)

The interest on these bonds is paid half-yearly on 1st January and 1st July every year. There is no cumulative option in RBI floating rate bonds that pays out at the end of the tenure.

Is RBI Floating rate bond tax free? No. The interest is fully taxable, and hence the name RBI Floating Rate Savings Bond (Taxable) 2020.

The tenure of RBI Floating Rate bonds is 7 years. So once the 7-year period is over, the bond money shall be paid back to the investor, on expiry of 7 years from the date of original subscription.

While this is the first time interest rates have actually changed for these bonds, there have been quite a number of reset events in past 2-3 years.

There have been 4 interest rate resets in the past (and 5 if we include the current one):

  • 1st Reset of RBI Floating Rate Bond happened on 1st January 2021. The NSC rate back then was 6.80%. So applying the spread of +0.35%, the interest rate of the RBI floating rate bond was set at 7.15%. This was applicable for the period from January to June 2021. (Link on RBI website for more details)
  • 2nd Reset of RBI Floating Rate Bond happened on 1st July 2021. The NSC rates remained unchanged over the past six months at 6.80%. So with +0.35% spread, the RBI floating rate bond interest rate remained at 7.15%. This was applicable for the period from July to December 2021 (Link on RBI website for more details)
  • 3rd Reset of RBI Floating Rate Bond happened on 1st January 2022. The NSC rates remained unchanged over the past six months at 6.80%. So with +0.35% spread, the interest rate on RBI floating rate bond remained at 7.15%. This was applicable for the period from January to June 2022 (Link on RBI website for more details)
  • 4th Reset of RBI Floating Rate Bond happened on 1st July 2022. The NSC rates remained unchanged over the past six months at 6.80%. So with +0.35% spread, the RBI floating rate bond interest rate remained at 7.15%. This was applicable for the period from January to June 2022 (Link on RBI website for more details)
  • 5th Reset of RBI Floating Rate Bond happened on 1st January 2023. The NSC rates were finally changed to 7%. So with +0.35% spread, the interest rate of RBI floating rate bond increased to 7.35%. This was applicable for the period from January to June 2023 (Link on RBI website for more details)

So if you are looking for the History of RBI Floating Rate Bond Interest Rates, then here it is:

  • RBI Floating Rate Bond (January-June 2021) interest rate – 7.15%
  • RBI Floating Rate Bond (July-December 2021) interest rate – 7.15%
  • RBI Floating Rate Bond (January-June 2022) interest rate – 7.15%
  • RBI Floating Rate Bond (July-December 2022) interest rate – 7.15%
  • RBI Floating Rate Bond (January-June 2023) interest rate – 7.35%

In 2020, the Indian Government decided to issue the Floating Rate Savings Bonds (Taxable) 2020 or FRSB-2020, with effect from July 01, 2020 to enable resident Indians/HUF to invest in a taxable bond, without any monetary ceiling. These bonds were launched to replace Government of India’s erstwhile 7.75% (taxable) bonds, which were commonly known as RBI 7.75% Bonds. The major difference between RBI Floating Rate Savings Bonds (2020) Vs RBI 7.75% taxable Savings Bonds (2018) was the interest rate is floating and not fixed for the former, and it was fixed for the entire tenure for the erstwhile 7.75% RBI Bond.

If we compare RBI Floating Rate Bonds with SCSS and PMVVY, then here too the difference in changing interest rates. While even SCSS and PMVVY see periodic changes in interest rates, these are still locked-in for the full tenure when you invest in it. But in case of floating rate bond, the interest rate applicable to you continued to change (float) and is not fixed for the entire tenure. So if rates go up, then its good for you. But if its goes down, then its not good for the bond holders.

While the minimum investment in these bonds is Rs 1000, there is no maximum upper limit on investment you can make in RBI Floating Rate bonds.

Only resident Indians and HUFs can invest in these bonds. NRIs cannot invest in these bonds. But if you become an NRI after you have purchased the bond, then you can continue holding the bonds till maturity like residents/HUFs.

While the tenure of these bonds is pretty long, there is a facility for premature exit available only for senior citizens. Eligible old-age investors can encash the bond prematurely after the lock in period of 4, 5, and 6 years in the age bracket of 80 years and above, between 70 to 80 years and 60 to 70 years respectively.

So that was all about the latest interest rate of RBI Floating Rate Bonds 2023 in India.

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