From July 1, your clients seeking regular income will have a new investment vehicle to park their money.
The government has announced the launch of Floating Rate Savings Bonds, 2020 (Taxable) from July 1, 2020. The interest on these bonds is payable semi-annually on Jan 1 and July 1 every year.
The initial coupon on Jan 1, 2021 will be paid at 7.15% and then the interest rate for the next half-year will be reset every six months. The first reset will be on January 01, 2021.
Debt expert Joydeep Sen feels the government backed bonds are a good option for those who seek regular income, as the interest is payable in every six months. Note that there is no option to receive the cumulative interest at maturity.
The launch of Floating Rate Savings Bonds, 2020 (Taxable) comes in place of 7.75% Savings (Taxable) Bonds, 2018. The issuance of the 7.75% bonds was stopped on March 28 this year.
Here are some key points about Floating Rate Savings Bonds, 2020 (Taxable):
Eligibility:
Individuals (including Joint Holdings) and Hindu Undivided Families (HUF) are eligible to invest in these bonds.
NRIs cannot invest in these bonds.
Investment limit:
There is no maximum limit for investment in these bonds.
Tenor:
These bonds are repayable on the expiration of 7 years from the date of issue. This means an investor cannot redeem his investment before 7 years.
Premature redemption is allowed for specified categories of senior citizens.
Taxation:
Interest from these bonds to be taxed as per the income tax slab applicable of the investor.
How to invest?
Applications for these bonds will be received in the designated branches of SBI, nationalised banks, IDBI bank, Axis bank, HDFC bank and ICICI bank.
Subscription to the bonds will be in the form of cash (upto Rs 20,000), drafts, cheques or any electronic mode acceptable at the designated bank branches.
Are they tradable?
The bonds are not tradable in the secondary market.
The bonds will not be eligible as collateral for loans from banks, financial institutions and non-banking financial companies.
