Giving a New Year gift to bond investors, the government has floated seven-year taxable savings bonds offering an attractive yield of 7.75% compounding semi-annually. This means, the bonds offer an effective interest rate of 7.90% per annum.
The government will issue these bonds from January 10, 2018. This issue replaces the 8% Savings Bonds Scheme that closed for subscription on Tuesday.
Distributors can earn up to 1% commission on these bonds. “Brokerage at the rate of Re.1.00 per Rs.100 will be paid to the brokers registered with the receiving offices,” the RBI notification said.
Here are some key features of the bond
- The bonds come with maturity of 7 years
- Investors have an option to choose between cumulative (withdraw money at the maturity in one go) and non-cumulative (periodic payout)
- Since these bonds fall under non-equity taxation norms, short term capital gain tax i.e. if investors redeem their investments within 3 years, the capital gain component will be added to their income and taxed as per their income tax slab. On the other hand, if investors hold such bonds for over three years, they can avail indexation benefit along with 20% tax rate under long term capital gain tax
- Individuals and HUF can invest in these bonds. However, NRIs are not allowed to buy these bonds
- Investors will have to invest a minimum of Rs.1,000 for one unit of the bond. The good news is that there is no maximum limit to invest in these bonds