Money Excel - Personal Finance Blog

Menu
MENUMENU
MENUMENU
  • Home
  • Business Ideas
    • 225 Small Business Ideas
    • 40 Online Business Ideas
    • 20 Business Ideas for Beginners
    • 20 small manufacturing business
    • 30 Food Business Ideas
    • 100 Business Ideas low investment
  • Stock Market
    • Best Demat & Trading Accounts 2021
    • Best Virtual Trading Apps
    • Best Stock Screener
    • Best Discount Brokers in India
    • Multibagger Stocks of LockDown
    • Rakesh Jhunjhunwala Portfolio
  • Mutual Funds
    • Best Mutual Funds 2021-22
    • Best Direct Mutual Fund Platform
    • Best Mutual Fund Mobile Apps
  • Incometax
    • Income Tax Calculator FY 2020-21
    • Latest Income Tax Slab FY 2021-22
    • Income Tax Refund Request
    • Pay Advance Tax Online
    • Download New 15G -15 H Forms
  • Investment
    • Best Investment Options 2021
    • Long Term Investment Options
    • Best Investment Regular Income
    • Best Investment Options NRI
  • Credit Card
    • Best Credit Cards 2021-22
    • Best credit card for online shopping
    • Best Forex Card in India
    • Best Business Credit Cards
    • Credit Cards against Fixed Deposit
  • Insurance
    • Best Term Insurance Plans 2021
    • Best Health Insurance 2021
    • Best LIC Policy 2021
    • Best Car Insurance Companies
    • Best Mobile Insurance Companies
  • Downloads
Home
Investment
Government Saving Bonds 7.75% Interest rate – Good for Investment?

Government Saving Bonds 7.75% Interest rate – Good for Investment?

Raviraj Parekh April 25, 2018

Government Saving Bonds

The government of India has recently launched Government Saving Bonds. These bonds will fetch 7.75% return to the investor. These bonds are taxable in nature. Let’s understand the salient features of these bonds and whether you should consider investing in these bonds.

Government Saving Bonds with 7.75% Interest rate – Key Points

These are not new bonds. The earlier 8% bond (2003) is withdrawn and new government saving bond is introduced. Key points about these bonds are given below.

  1. Maturity: Maturity of these Government of India Bonds is years.
  2. The Rate of Interest: The rate of interest of 7.75%, payable half yearly (In non-cumulative).
  3. The bonds are available in both cumulative and non-cumulative mode.
  4. Who can invest -Individuals and Hindu Undivided Family (HUF) can invest in such bonds. NRIs cannot invest in these bonds.
  5. Maximum Investment: There is no maximum limit on investment in these bonds.
  6. The bonds will be issued with minimum amount Rs.1000 and in multiples thereof.
  7. If an investment of Rs.1000 is made in this bond after 7 years maturity amount shall be Rs.1703.
  8. Taxability of Interest Income: The interest income from such bonds will be taxed at your income tax slab rate.
  9. Tax Benefit on Investment: You do not get any tax benefit for investing in these bonds.
  10. Pre-mature exit before maturity: These bonds come with a lock-in period of 7 years. You will not be able to exit these bonds before maturity. So, the investor with short-term investment horizon should not invest in these bonds.
  11. Loan Option – These bonds are not eligible as collateral for loans from banks or NBFCs either.
  12. No credit risk (unless you believe the Government of India can default on rupee-denominated debt.
  13. How to Invest: You can invest through selected bank branches or through websites of leading brokers.
  14. These bonds are not transferable and non-tradable in the secondary market.

Also Read – Post Office Fixed Deposit Interest Rates 2018

Government Saving Bonds 2018 – Calculation

Do not miss below posts -
  • Exchange Traded Funds as an Investment Option
  • Calculating Returns of Investment – Formulas & Examples – 1
  • Suppandi Making Investing Simple – Video Series

As discussed above, these bonds are available in two modes. (1) Cumulative (2) Non-Cumulative

Cumulative Government Saving Bonds –

In a Cumulative mode, you will not get anything till maturity of the bond. Suppose you invest Rs.1 Lakh in these bonds at the end of 7 years you will get 1.7 Lakh as maturity amount. Pre-tax effective yield will be 7.9%. On the maturity amount tax is applicable as per tax-slab.

Non-Cumulative Government Saving Bonds –

Under non-cumulative mode, you will get interest amount back every six months. This means if you invest Rs.1 Lakh in this bond you will get Rs.3,875 every six months. At the maturity, after 7 years you will get your principal back.

Should you invest in Government Saving (Taxable) Bonds, 2018?

The interest income in this bond is taxable. So, the effective return will be very low. If investor is falling under 30% tax bracket, the post-tax return will be 5.5% p.a under non-cumulative mode. This means return from this bond cannot even beat inflation rate.

So, it is a big no for the young professional with taxable income, the guaranteed post-tax return of 5.5-7% p.a is not acceptable for medium-term investment.

Now, if we talk about senior citizen or retired people there are other regular income options such as Pradhan Mantri Vandana Vyaya Yojana (PMVVY) with 8% return (taxable) for 10 years and Senior Citizens Savings Scheme (SCSS) is offering 8.3% p.a. (as on January 5, 2018) for 5 years. Clearly, 7.75% bond will not withstand against these schemes of the government.

Another point is investing in this bond means locking money for 7 years. You will not able to access your investment in case of emergency. So, from return and liquidity point of view, it is a big NO for the government saving bonds.

Do share your views in the comment section!

Tweet
Share
Whatsapp
Pinterest
Prev Article
Next Article
Tags:government 7.75% bond government bonds government of india saving bonds government saving bonds

About The Author

Raviraj Parekh

Raviraj is the man behind moneyexcel.com. He is PGDBA, engaged in blogging for 10 years. Moneyexcel blog is ranked as one of the Top 10 Personal Finance Blog in India. He is not affiliated with any financial product, service provider, agent or broker. The purpose of this blog is to spread financial awareness and help people in achieving excellence for money. Please note that the views expressed on this Blog/Comments are clarifications meant for reference and guidance of the readers to explore further on the topics. These should not be construed as investment advice or legal opinion.

Leave a Reply Cancel Reply

Search

Top Posts & Pages

  • Income Tax Calculator FY 2020-21 (AY 2021-22) – Excel Download
  • Rakesh Jhunjhunwala Portfolio Holdings - March 2021
  • 20 small manufacturing business ideas with low cost
  • Download Income Tax Calculator FY 2021-22 (AY 2022-23)
  • Cash Deposit Machine Locator – How to find CDM Near You?
  • How to check Property Records and Land Records online in India?
  • 235 Small Business Ideas with Low Investment in 2021-22
  • LIC Premium Paid Certificate Download For Income Tax Purpose - Online
  • 30 Food Business Ideas with low investment
  • 10 Best Small Trading Business Ideas

Subscribe to Blog via Email

Join 5,474 other subscribers

Follow MoneyExcel

Money Excel – Personal Finance Blog

Personal Finance Blog
Copyright © 2021 Money Excel - Personal Finance Blog
| About |Downloads | Contact Us | Sitemap | Disclaimer | Privacy Policy |