- Many banks have cut bank fixed deposit rates over the past few months
- Fixed deposit rates are likely to fall further after demonetisation
- Financial planners suggest investing in governments 8% savings bonds
Some financial planners suggest investment in Government of India's 8% Savings (Taxable) Bonds, which offer an interest rate of 8 per cent per annum. These bonds are issued by the Reserve Bank of India. Since these bonds are issued on behalf of Government of India, they are one of the safest investments anybody can look for. The bonds are available for purchase by retail investors on tap, which means an investor can buy them as and when required.
In comparison, State Bank of India (SBI) currently pays an interest rate of 6.5 per cent on 5- to 10-year deposits. Like bank fixed deposits, the interest income earned from these government bonds are added to one's income and taxed according to the respective slabs.
Features Of Government of India's 8% Savings (Taxable) Bonds
These Government of India bonds have a lock-in period of six years.
Investors can choose between the cumulative and non-cumulative modes for payment of interest. In the cumulative option, interest is paid on maturity of bonds. In the non-cumulative mode, interest is paid on a half-yearly basis.
Under the cumulative option, the maturity value of the bonds shall be Rs 1,601 for every Rs 1,000 invested at the interest rate of 8 per cent per annum, compounded on a half-yearly basis.
The minimum investment is Rs 1,000 and there is no maximum limit which is in multiples of Rs 1,000.
These bonds are not tradable or transferable. However, nomination facilities are available.
Should You Invest?
Vikram Dalal, managing director of Synergee Capital Services, says it is a good investment option for investors in the current scenario of falling interest rates. But as these bonds are not tradable or transferable, investors should have a very clear understanding of these aspects before investing, he said.
Mr Dalal says that for investors in the 30 per cent tax bracket, tax-free bonds are a better option, which are giving a pre-tax return of 8.75 per cent. Besides, tax-free bonds are tradable, he adds.
(Also read: Bank FD Rates Fall. Should Investors Look At Tax-Free Bonds?)
This has increased the appeal of tax-free bonds, issued by government-owned entities in the past few years. These bonds were a huge hit among investors who looked for a steady tax-free interest income but this fiscal year, there would not be fresh issues of tax-free bonds. Since tax-free bonds are traded on exchanges, investors can buy them from secondary markets.