Government of India has decided to issue 7.75% bond starting January 10, 2018, notice for the same was issued on January 3, 2018.
These 7.75% GOI bonds will replace the 8% bonds scheme which was earlier in place for retail investors. Also the tenure has been increased from 6 years (For 8% bonds) to 7 years now.
In this post we’ll see some of the features of these 7.75% GOI saving bonds.
Who is eligible to invest
The 7.75% Government of India Savings Bonds are open to investment by-
- Resident individuals.
- In individual capacity on joint basis.
- On behalf of minor as father/mother/legal guardian.
- A Hindu Undivided Families (HUF).
NRIs are not permitted to invest in 7.75% GOI bonds.
Where can you buy 7.75% GOI bonds
You need to make an application in Form A (Reference download- https://rbidocs.rbi.org.in/rdocs/content/pdfs/STB09012018_A1.pdf) for investing in these bonds. The application for the bonds will be received at any number of branches of State Bank of India, Nationalised Banks, three private sector banks and SCHIL(Stock Holding Corporation of India Ltd.). Names of the banks are listed here.
Public Sector Banks
1.State Bank of India 2. Allahabad Bank 3. Bank of Baroda 4. Bank of India 5. Bank of Maharashtra 6. Canara Bank 7. Central Bank of India 8. Dena Bank 9. Indian Bank 10. Indian Overseas Bank 11. Punjab National Bank 12. Syndicate Bank 13. UCO Bank 14. Union Bank of India 15. United Bank of India 16. Corporation Bank 17. Oriental Bank of Commerce 18. Vijaya Bank 19. IDBI Bank Ltd.
Private banks
1. ICICI Bank Ltd. 2. HDFC Bank Ltd. 3. Axis Bank Ltd.
Payment options and bond holding form
Payment for the bond can be done in form of Cash/Drafts/Cheques or electronic transfer.
The Bonds will be issued only in the demat form and credited to the Bond Ledger Account (BLA) of the investor.
Holding period of the bond
The Bonds will have a maturity period of 7 years.
Pre-Mature encashment of the bond
Premature encashment of the bond is permitted for individual investors in the age group of 60 years and above. Condition for that are as follows-
- If the investor is in the age bracket of 60 to 70 years then the lock in period shall be 6 years from the date of issue.
- If the investor is in the age bracket of 70 to 80 years then the lock in period shall be 6 years from the date of issue.
- If the investor is 80 years and above lock in period shall be 4 years from the date of issue.
Note that in case of joint holders or more than two holders of the Bond, the premature encashment is not allowed and the lock in period will be 7 years even if any one of the holders fulfils the above conditions of eligibility.
In case of premature encashment there is also a penalty which is calculated as - 50% of interest due and payable for the last six months of the holding period both in respect of Cumulative and Non-cumulative bonds.
Minimum and maximum limit of investement
Minimum amount to invest in 7.75% GOI bond is Rs. 1000 (face value) and in multiples of 1000.
There is no maximum limit.
Interest options
As the name suggests these bonds will bear interest at the rate of 7.75% per annum but you have two options to choose from while buying-
- Cumulative
- Non-cumulative
Interest on non-cumulative Bonds will be payable at half-yearly intervals from the date of issue where as interest on cumulative Bonds will be compounded half-yearly but will be paid only on maturity along with the principal.
In case of cumulative bond the maturity value of the Bonds shall be Rs. 1,703.00 (principal + interest) for every Rs. 1,000.
Interest for non-cumulative Bonds will be paid from date of issue up to 31st July / 31st January as the case may be, and thereafter half-yearly for period ending 31st July and 31st January on 1st August and 1st February.
Interest for non-cumulative Bonds will be paid from date of issue up to 31st July / 31st January as per the date of issue, and thereafter half-yearly for period ending 31st July and 31st January on 1st August and 1st February.
Tax treatment
The interest earned on 7.75% GOI saving bonds is taxable as per the applicable tax slabs.
Tax will be deducted at source too at the time of interest payment.
Tax will be deducted at source while making payment of interest on the Non-Cumulative Bonds from time to time and credited to Government Account.
Tax on the interest portion of the maturity value will be deducted at source at the time of payment of the maturity proceeds on the Cumulative Bonds and credited to Government Account.
The Bonds will be exempt from wealth-tax under the Wealth Tax Act, 1957.
Nomination facility in 7.75% GOI bonds
You can nominate one or more persons using Form B. You can also cancel the previous nomination using Form C.
No nomination shall be made in respect of the Bonds issued in the name of a minor.
If the nominee is a minor, the holder of Bonds may appoint any person to receive the Bonds/ amount due in the event of his / her / their death during the period the nominee is a minor.
Tradability or loan against Bonds
The Bonds are not tradable in the secondary market and are not eligible as collateral for availing loans from banks, financial Institutions and Non-Banking Financial Companies.
So theses are features of the 7.75% Government of India saving bonds, based on that you can make an informed decision whether to invest in these bonds or not. I can again sum up the good points and bad points.
Good points about 7.75% GOI bonds
- Risk free investment, backed by Government of India.
- Assured return of 7.75% with no fluctuation.
- Reasonable lock-in period of 7 years with option for senior citizens to encash it prematurely.
- Provides an option to get interest income every 6 months if you opt for non-cumulative bonds.
- Going by the prevalent interest rates (Jan, 2018 – Mar 2018 quarter) where small saving schemes like PPF are giving 7.6%, FDs are offering 6%-6.5%, Kisan Vikas Patra (KVP) is giving 7.3%, interest rate provided by these bonds looks better.
Bad points about 7.75% GOI bonds
- Interest income is taxable making the real returns reasonably less if you are in 20% or 30% tax slab. For a person who is in 30% tax slab real rate of return will be around 5.5%. So in comparison to risk free EEE investments which are available like PPF, SSY it’s returns are low.
- Investment in these bonds can’t be claimed under 80C.
- Even for Senior citizens who are finding it attractive because of pre-mature encashment option there are better options available like Senior Citizen Saving Scheme which offers 8.3% interest rate (Jan, 2018 – Mar, 2018 quarter) and duration is 5 years.
- There are early indications that interest rates may start going up in next quarter or two. So locking up amount at 7.75% interest rate that too taxable may not be a good idea right now if you can wait.
That's all for this topic 7.75% Government of India Savings Bonds. If you have any doubt or any suggestions to make please drop a comment. Thanks!
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