- Date : 14/06/2023
- Read: 3 mins
RBI Floating Rate Savings Bonds have become an attractive avenue with RBI’s latest rate hikes. You get more than 8% return without any credit risk. But do they make for a good addition to the portfolio? Let’s understand.
- RBI Floating Rate Savings Bonds are government-backed, fixed-income bonds
- Their interest rates are expected to rise to 8.05% from July 2023 making them a lucrative avenue
- The bonds have several positive aspects like guaranteed returns, no credit risk, regular income payouts, etc.
- There are some drawbacks too like non-guaranteed interest rates, taxable income, etc.
RBI Floating Rate Savings Bonds are fixed-income debt instruments issued by the RBI on the government’s behalf. These bonds are backed by the government and, thus, carry no credit risk. The interest rate is fixed and reviewed every half-year. If you are looking for an avenue that offers fixed returns, the RBI Floating Rate Savings Bonds can be a good choice.
Recent rate hikes
Over the past year, the Reserve Bank of India (RBI) has been consistently raising the repo rates in the country to check inflation. A hike in repo rates has made loans dearer. On the other hand, deposits have become attractive as their interest rates have also increased following the rate hike.
Interest rates of small-savings schemes (Public Provident Fund, National Savings Certificates, Sukanya Samriddhi Yojana, etc.) have also increased. This has also contributed to a jump in the interest rates of RBI Floating Rate Savings Bonds.
Also Read – Know about the latest rate hikes in small-savings schemes
RBI Floating Rate Savings Bonds interest rates
The interest rates on the RBI Floating Rate Savings Bonds have been changing over the past couple of years. Have a look –
- Rates increased to 7.35% in December 2022
- Rates increased to 7.70% in April 2023
In the next review scheduled in July 2023, the interest rates on RBI Floating Rate Savings Bonds are expected to be set at 8.05%.
Should you invest in RBI Floating Rate Savings Bonds?
With interest rates going above the 8%-mark, RBI Floating Rate Savings Bonds have become attractive. Here are some pros and cons of investing in these bonds –
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The bottom line
You can invest a part of your portfolio in RBI Floating Rate Savings Bonds to add a debt component and get a stable interest income every six months. However, remember that any rate revision might reduce the future return potential.
You can even explore other savings avenues like PPF, NSC, etc. which might offer higher returns on investments and also a tax advantage. So, assess the pros and cons of the RBI Floating Rate Savings Bonds and make an informed decision.
Also Read – Find out if Floating Rate Savings Bonds are a good investment avenue in rising repo rates
