We discuss here the answer to the question: "Should you buy the new floating rate GOI Bonds?" We discuss the features of the new floating rate taxable Government of India Bonds and how they compare with other fixed income options at a time of falling fixed deposit interest rates.
Edited Highlights
0:00 Here, we will discuss about taxable and floating rate GOI Bonds
0:23 These bonds got re-launched in the first week of July with a floating rate and till May-end had a fixed rate
0:27 The previous rate was going at 7.75% p.a
0:29 Now they are floating rate bonds
0:32 Now their interest is taxable
0:37 Should you be investing in them? We will be talking about the features
0:39 We will discuss why and how they are interesting as investments
1:18 At May-end people could still buy taxable fixed rate GOI bonds
1:26 The new floating rate bonds are available at 7:15% p.a
1:34 Of course, the interest rate is floating
1:39 The floating interest rate of these GOI Bonds is benchmarked to the National Savings Certificate (NSC)
1:50 GOI Bond interest rate will be 35 basis points or 0:35 percentage points higher than the interest rate of NSC
1:58 This is an investment with a 7-year tenure or term
2:08 Twice in a year i.e. July 1 and January 1, the interest can be reset
2:18 The revision would be based on the revision of NSC rate and would be 35 basis points higher
2:50 Compared to GOI Bonds, the alternative for regular income Senior Citizen Savings Scheme is available for 5 years
3:09 You can go for GOI Bonds for Rs 1,000 or its multiples
3:19 You can buy the bonds in different formats such as individually and either or survivor
3:26 Hindu Undivided Family (HUF) can do it though NRIs are not allowed to invest in them
3:30 The bond issuance is digital
3:39 You can buy them from any public sector banks or 4 private sector banks
3:59 You get no interest beyond the maturity date of the GOI Bonds
4:26 Why GOI Bonds become comparable with Senior Citizens Savings Scheme with its fixed interest rate
4:28 Right now, Senior Citizens Savings Scheme provides 7.4% p.a
4:32 Thus, GOI Bonds are less rewarding than Senior Citizens Savings Scheme
4:37 However, Senior Citizens Scheme has an upper investment limit of Rs 15 lakh whereas there is no limit for GOI Bonds
4:51 For creating regular income, especially retirement income, you need to consider GOI Bonds
4:55 This is because it is government-backed
5:00 One needs to also see this in the backdrop of bank interest rates going down
5:09 There might be some banks or government-backed or supported NBFCs may offer higher rates
5:22 With interest rates going down, you want a freeze or lock on the interest rates
5:37 If you are not a senior citizen and want to invest more than Rs 15 lakh
5:42 In such cases, GOI Floating Rate Taxable Bonds becomes an important option
5:53 Of course, if an alternative is paying higher interest rates, check how secure the investment is
6:15 You can make a premature exit from GOI Bonds
6:17 If you are above 80 years, you can make a premature exit in 4 years
6:27 Between age 70 and 80, it is five years
6:31 Between 60 to 70 years, it is six years
6:48 In case of a premature exit, there is a penal interest rate of 50 basis points or 50 percentage points charged
6:56 GOI Bonds are not transferrable
7:08 Proceeds gets transferred to nominees on death
7:29 GOI Bonds are useful for regular income regardless of anyone's age
7:39 Of course, there would be higher paying FDs for senior citizens
