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.
Wealth-Impact Simulator
See what a one-time investment could grow to.
Indicative estimate for education only — not investment advice.
Explore investmentsNon-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.
Community Pulse · This story
How readers rate the outlook after reading this article. Anonymous · one vote per reader · updates live.
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.
Join the Arth Vani channels
Daily news summaries, IPO & market alerts on Telegram and WhatsApp.
Because you read about Fixed Income
IPOBreakingSGB 2018-19 Series VI Investors See 361% Return on Premature Redemption
Investors in the Sovereign Gold Bond (SGB) 2018-19 Series VI can redeem their bonds prematurely starting today, with the Reserve Bank of India (RBI) setting the redemption price at ₹15,102 per unit. This translates to an impressive 361% return for those who purchased the bonds at the initial issue price of ₹3,276, excluding the annual interest.
Indian Government Bond Rally Expected to Slow Amid Index Inclusion Uncertainty
The recent rally in Indian government bonds is anticipated to lose steam as hopes for inclusion in Bloomberg's Global Aggregate Index diminish. Traders foresee bond yields remaining stable due to a shrinking yield gap with developed markets, higher government borrowing, and volatile crude oil prices.
AI Spending Concerns Push Up Borrowing Costs for Global Tech Giants
Global tech giants like Google, Amazon, and Meta are facing higher borrowing costs as bond investors grow cautious about their significant investments in Artificial Intelligence (AI). This signals increasing anxiety in the fixed-income market regarding the large capital expenditures for AI projects.
Related Stories
IPOBreakingSGB 2018-19 Series VI Investors See 361% Return on Premature Redemption
Investors in the Sovereign Gold Bond (SGB) 2018-19 Series VI can redeem their bonds prematurely starting today, with the Reserve Bank of India (RBI) setting the redemption price at ₹15,102 per unit. This translates to an impressive 361% return for those who purchased the bonds at the initial issue price of ₹3,276, excluding the annual interest.
Indian Government Bond Rally Expected to Slow Amid Index Inclusion Uncertainty
The recent rally in Indian government bonds is anticipated to lose steam as hopes for inclusion in Bloomberg's Global Aggregate Index diminish. Traders foresee bond yields remaining stable due to a shrinking yield gap with developed markets, higher government borrowing, and volatile crude oil prices.
AI Spending Concerns Push Up Borrowing Costs for Global Tech Giants
Global tech giants like Google, Amazon, and Meta are facing higher borrowing costs as bond investors grow cautious about their significant investments in Artificial Intelligence (AI). This signals increasing anxiety in the fixed-income market regarding the large capital expenditures for AI projects.
BreakingInvesting in Debt Funds for 1-3 Years? Explore These 4 Categories
For Indian retail investors eyeing a 1-3 year investment horizon, certain debt fund categories offer suitable options. Short-duration, dynamic bond, corporate bond, and banking & PSU funds are highlighted as potential choices. Investors should be aware of the varying risk profiles across these categories.