What are Government of India bonds
Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form only and are not listed or tradable on stock exchanges. The minimum investment amount is Rs 1,000 (face value of one bond) and there is no maximum limit of investment. The interest received from these bonds is taxable, at the marginal rate of income tax you are liable to pay. Tax is deducted at source if your total interest exceeds Rs 10,000.
What's good with Government of India Bonds...
In the current market environment, interest rates in the economy are expected to head lower. The benchmark repo rate has been lowered from a peak of 8% in 2014 to 6.25% now. This has meant that small savings rates and fixed deposit rates have also fallen. This bond at 8% now boasts a rate of interest higher than the SBI 5-year fixed deposit, the post office monthly income scheme, the National Savings Certificate and the Kisan Vikas Patra. Being issued by the Reserve Bank of India means associated security and safety. The rate fixed by the government has not been changed so far and buying this bond now means locking in income for 6 years at a relatively higher rate.
...What's not good with Government of India Bonds
Since the bonds are not listed, there is no secondary market exit. While you can apply for the bond with a joint holder, you cannot transfer it. You can pledge the bond to raise a loan but that facility is limited to loans from scheduled commercial banks. All the documentation for the bond, nomination, any pledge or transfer at death of the holder is to be done in physical form and there is no online facility available at present. You can, however, apply online through an online portal- icicidirect.com (which acts as a distributor for ICICI Bank for this bond)-if you are a registered user.
This is a good option for savers you seek safety over returns.
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