RBI Floating Rate Savings Bonds: Can NRIs Invest in the 8.05% Interest Scheme?
Source: ET Wealth
Arth Insight · What this means for your wallet
- NRIs cannot invest in these high-interest (8.05%) RBI bonds, missing out on a safe, government-backed investment option.
- Resident Indians and HUFs can still benefit from these bonds, offering better returns than many fixed deposits with zero credit risk.
- Interest earned on these bonds is fully taxable for resident investors, impacting your net returns based on your income tax slab.
Non-Resident Indians (NRIs) are currently restricted from making fresh investments in the popular RBI Floating Rate Savings Bonds (FRSB) 2020. While the bonds offer a competitive 8.05% interest rate backed by a sovereign guarantee, the scheme is strictly reserved for Indian residents and Hindu Undivided Families (HUFs).
- ▸NRIs are not allowed to make fresh investments in RBI Floating Rate Savings Bonds.
- ▸Existing bondholders who turned NRI after purchase can hold the bonds until maturity.
- ▸The current interest rate is 8.05%, which is reset semi-annually based on NSC rates.
- ▸The bonds have a 7-year lock-in period with no premature exit for non-senior citizens.
- ✓NRIs are not allowed to make fresh investments in RBI Floating Rate Savings Bonds.
- ✓Existing bondholders who turned NRI after purchase can hold the bonds until maturity.
- ✓The current interest rate is 8.05%, which is reset semi-annually based on NSC rates.
- ✓The bonds have a 7-year lock-in period with no premature exit for non-senior citizens.
The Reserve Bank of India (RBI) Floating Rate Savings Bonds (FRSB) 2020 have emerged as a preferred choice for conservative investors seeking safety and high yields. Currently offering an interest rate of 8.05%, these bonds provide a significant spread over traditional fixed deposits. However, for the Indian diaspora looking to park their overseas earnings in this government-backed instrument, the regulations are restrictive.
Eligibility Criteria for RBI Floating Rate Bonds
Under the current guidelines, only individuals residing in India and Hindu Undivided Families (HUFs) are eligible to purchase these bonds. Non-Resident Indians (NRIs) are explicitly prohibited from making new applications or fresh investments into the RBI Floating Rate Savings Bonds. This restriction applies regardless of whether the funds are sourced from NRE, NRO, or FCNR accounts.
Rules for Existing NRI Holders
While fresh investments are barred, the rules provide a provision for those whose residency status changed after the investment was made. If an individual invested in these bonds while they were a resident Indian and subsequently became an NRI, they are permitted to hold the bonds until maturity. The interest earned and the principal amount upon maturity will be credited to the holder's account as per the prevailing FEMA (Foreign Exchange Management Act) regulations.
Key Features of the 8.05% Bonds
For eligible resident investors, the RBI Floating Rate Savings Bonds offer several unique features:
- Floating Interest Rate: The interest rate is reset every six months (January 1 and July 1). It is pegged at 0.35% above the prevailing National Savings Certificate (NSC) rate.
- Sovereign Guarantee: Being issued by the RBI on behalf of the Government of India, these bonds carry the highest level of safety with zero credit risk.
- Tenure: The bonds have a fixed tenure of 7 years. Premature withdrawal is generally not allowed, except for senior citizens after a specific lock-in period.
- Taxation: The interest income is fully taxable as per the investor's income tax slab. There is no tax exemption under Section 80C.
What Should NRIs Do?
Since the RBI Floating Rate Bonds are off-limits, NRIs seeking similar safety and returns may explore alternative avenues such as NRE Fixed Deposits, which offer tax-free interest in India, or Government Securities (G-Secs) and Treasury Bills (T-Bills) which are often accessible to NRIs through the RBI Retail Direct portal or specific brokerage platforms, subject to FEMA compliance.
This report is for informational purposes only and does not constitute financial or investment advice.
Bond / FD returns and credit ratings are indicative and subject to issuer credit risk and interest-rate risk. Verify current terms with the issuer. Some listings may be sponsored. Not investment advice.
Frequently Asked Questions
Can an NRI buy RBI Floating Rate Bonds using an NRO account?
No, NRIs are prohibited from making fresh investments in these bonds, regardless of the account type used.
What happens if a resident investor becomes an NRI after buying the bonds?
The investor can continue to hold the bonds until the 7-year maturity period ends, but they cannot reinvest or buy new bonds.
Is the 8.05% interest rate fixed for 7 years?
No, the rate is floating and is reset every six months on January 1 and July 1, maintaining a 0.35% margin over the NSC rate.
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