8% Government of India Savings (Taxable) Bonds – Should you Invest?

Government of India Savings Taxable Bonds

Government of India Savings Taxable Bonds

Government of India Savings (Taxable) Bonds, 2003 has been relaunched offering 8% interest and maturity of 6 years. These bonds were first launched in 2003 and were quite popular then. We look at the salient features of these GOI bond so that you can decide if it’s right investment for you!

Salient Features: 8% GOI Savings (Taxable) Bonds

Interest Offered: 8% (compounded/payable half-yearly)

Issued by: Reserve Bank of India

Eligible Investors: Individuals (single, joint or minor), HUFs, Charitable Trusts and Universities. However NRIs are NOT eligible to invest.

Face Value of Bond: Rs 1,000

Minimum Investment: 1 bond (Rs 1,000)

Maximum Investment: There is NO maximum limit for investment

Also Read:13 Investments to Generate Regular Income

Bond Tenure: 6 Years

Investment Options:

  1. Cumulative – You receive Rs 1,601 at the end of 6 years on maturity for every Rs 1,000 invested
  2. Non-cumulative – Interest paid on August 1 and February 1 every year

Tax: The interest received is added to your income and taxed at your income tax slab rates

TDS: TDS is deducted if the interest income in a year exceeds Rs 10,000

Also Read: 25 Tax Free Incomes & Investments in India

Transfer: These bonds cannot be transferred from one holder to other

Trading: These bonds cannot be traded

Collateral for Loan: can be put as collateral to avail loan from scheduled commercial Banks

Nomination facility is available

Premature withdrawal:

  1. Lock in period for investors in the age bracket of 60 to 70 years shall be 5 years from the date of issue
  2. Lock in period for investors in the age bracket of 70 to 80 years shall be 4 years from the date of issue
  3. Lock in period for investors of the age of 80 years and above shall be 3 years from the date of issue

For the above scenario’s 50% of the interest due and payable for the last six months of the holding period will be recovered as penalty from the investor.

Partial Withdrawal: Not permitted

Where to Buy: You can buy GOI Bonds from Authorized branches of State Bank of India, Associate Banks, Nationalised Banks, a few private sector banks like ICICI, HDFC and Stock Holding Corporation of India Ltd. Offices.

Why you should Invest?

  1. 8% interest is higher than most banks are offering today.
  2. As the bonds are issued by RBI, there is NO credit risk and fully safe.

Also Read: Highest Interest Rate on Bank Fixed Deposits (FD)

Why you should NOT Invest?

  1. In most cases you cannot exit or sell the bond until maturity
  2. All documentation related to purchase, pledge or transfer at death of the holder etc. has to be done physically. There is no online facility available making it highly inconvenient.
  3. The interest is taxable and post-tax returns for 30% tax bracket would be just 5.53%
  4. Senior citizens should stay away as they can get 8.5% in senior citizens saving scheme with less hassles.

Alternate Investments?

Before you look to invest in GOI India Savings (Taxable) Bonds, 2003 you must look at following alternate investments:

1. National Saving Certificate (NSC)

The interest on 5 years National Saving Certificates is 8%. The good thing is NSC is also a tax saving instrument u/s 80C.

2. Company Fixed Deposits

Some companies with “AAA” rating like DHFL, Bajaj Finance, KTDFC Ltd., etc are offering interest of more than 8% on their fixed deposits.

Also Read: High Rated Companies Offering more than Bank Fixed Deposits 

3. NCDs/Bonds listed on Stock exchange

Some examples:

  • M&M Financial Services (AAA rated) has yield of 8.52% and residual maturity of 9.37 years
  • Edelweiss Housing Finance Ltd (AA+ rated) has yield of 9.71% and residual maturity of 9.49 years
  • Reliance Home Finance Ltd (AA rated) has yield of 9.71% and residual maturity of 14.95 years

Also Read: Latest NCD open for subscription

The problem is the liquidity for these bonds are low and hence it’s difficult to buy/sell. However you can buy easily when they are issued.

4. Tax Free Bonds listed on Stock Exchanges

PFC, HUDCO, NABARD, IRFC etc had issued tax free bonds in the past and are available on exchanges with yields in the range of 6.17%. The bonds have residual maturity of 10 to 15 years. As the interest received is tax free, these turn out to be better investments for senior citizens in highest tax bracket. The interest payout is annual. Also all the companies are backed by Government of India and also AAA rated – hence safe for investment.

5. Debt & Arbitrage Mutual Funds

More savvy investors can invest in debt or arbitrage mutual funds. the returns are similar to bank fixed deposit but are more tax efficient.

Also Read: All about Arbitrage Mutual Funds

Should You Invest?

The 8% interest in Government of India Savings (Taxable) Bonds, 2003 seems attractive at first in the falling interest rate scenario. But we still have better options to invest as stated above and look to invest in them.

2 thoughts on “8% Government of India Savings (Taxable) Bonds – Should you Invest?

  1. Whether TDS shall be calculated on the final year Interest value or cumulative interest value of 6 years ?

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