RBI Floating Rate Bonds: NRI Investment Rules & 8.05% Interest

The Reserve Bank of India’s Floating Rate Savings Bonds 2020 (Taxable) currently offer an 8.05% interest rate, establishing them as a low-risk, government-backed fixed-income option. While resident individuals are eligible investors, Non-Resident Indians (NRIs) generally face restrictions on new investments in these bonds.

NRI Investment Restrictions Explained

Non-Resident Indians are typically not permitted to make fresh investments in the RBI Floating Rate Savings Bonds. This policy ensures that new purchases are limited to individuals residing in India.

However, a specific exception exists for investors whose residency status changes after their initial acquisition.

• Individuals who become Non-Resident Indians after already owning these bonds are allowed to retain their holdings until maturity.
• Interest payments and maturity proceeds for such investors remain subject to the provisions of the Foreign Exchange Management Act (FEMA).

Understanding the Interest Rate Mechanism

The 8.05% interest rate on these bonds applies for the current six-month period, from July 1 to December 31, 2026. The Reserve Bank of India conducts a bi-annual review to adjust this rate.

The interest rate is directly linked to the prevailing National Savings Certificate (NSC) rate.

• The bond rate is calculated by adding 35 basis points to the NSC rate.
• Given the current National Savings Certificate rate of 7.70%, the Floating Rate Savings Bond rate is precisely 8.05%.

Key Features and Taxation Details

These bonds come with a seven-year maturity period, after which interest ceases to accrue. Premature redemption is generally prohibited, with an exception for eligible investors aged 60 years and above, subject to specific Reserve Bank of India rules and lock-in conditions.

Key financial characteristics of the bonds include:

• Minimum investment: ₹1,000.
• Additional investments: Possible in multiples of ₹1,000.
• Upper limit: No upper limit on the investment amount.

Interest earned from these bonds is fully taxable according to the investor’s income-tax slab, and Tax Deducted at Source (TDS) is applied upon interest payment. Therefore, the stated 8.05% figure represents a pre-tax yield.

Further structural aspects define these savings bonds:

• Interest is disbursed half-yearly, specifically on January 1 and July 1.
• The bonds are non-transferable and cannot be traded in the secondary market.
• They are not accepted as collateral for loans from banks or other financial institutions.