In a press release, RBI has announced that it will stop issuing the government of India’s 7.75% Savings (Taxable) Bonds, 2018. Also known as RBI 7.75% bond, it was among the high-interest paying saving products backed by the government like PPF, senior citizen savings scheme and Pradhan Mantri Vyaya Vandana Yojana.
The central bank did not mention the reason for stopping issuance of this bond. Bond dealers said this bond has become a relatively costlier tool for government borrowing. The bonds had an annual interest rate of 7.75% when the 10-year G-sec is trading around the 6% mark.
The RBI 7.75% bonds were an attractive option for regular income seekers like senior citizens and HNIs. The bonds had become all the more attractive after the government reduced the rate of interest on 8 small savings schemes by 70-140 basis points. These schemes include Public Provident Fund Scheme, National Saving Certificate, Senior Citizen Saving Scheme, Kisan Vikas Patra and Sukanya Samriddhi Account Scheme. Now the Public Provident Fund fetches 7.1% returns, as against 7.9% in Jan-March quarter of FY 2019-20. Similarly, the interest rate on National Savings Certificate has been slashed by 110 bps to 6.8% from 7.9%.
The RBI 7.75% bonds were available at a face value of Rs 100 per bond. The minimum investment amount was Rs 1,000 which means an investor needed to buy at least 10 bonds. There was no upper limit for investment.
