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Issue of RBI 7.75% bonds closes on May 28, 2020

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Last Updated: May 29, 2020, 09.54 AM IST
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Summary The RBI bonds were attractive as they were offering a higher interest rate as compared to bank fixed deposits and other financial instruments offering an equal degree of safety.

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An investor in these bonds can opt to receive interest payment either in cumulative or non-cumulative forms.
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The Reserve Bank of India (RBI) announced that 7.75 per cent Savings (Taxable) bonds, 2018 will not be available for investment from Friday i.e. May 29, 2020.

In its press release dated May 27, 2020, the central bank said, "The Government of India (GoI), vide Notification F.No.4(28)-(W&M)/2017 dated May 27, 2020, hereby announces that 7.75% Savings (Taxable) Bonds, 2018 shall cease for subscription with effect from the close of banking business on Thursday, the 28thof May 2020."

Therefore, you could invest in the RBI 7.75% bonds only yesterday till the end of banking business hours. These bonds were attractive as they were currently offering a higher interest rate as compared to bank fixed deposits and other financial investment instruments offering equal degree of safety.

For instance, State Bank of India (SBI), with effect from May 27, 2020, is offering 5.1 per cent on one-year fixed deposit, and 5.4% on a fixed deposit of more than 5 years . On the other hand, RBI taxable bonds were offering 7.75 per cent per annum.

However, the bonds have a long tenure and have a seven year lock-in period. For normal investors, premature withdrawal is not allowed. Premature withdrawl for senior citizens is as follows: the lock-in period for senior citizens in the age bracket of 60 to 70 years will be six years from the date of issue, in the age bracket of 70 to 80 years, the lock-in period will be of five years and any senior citizen, age 80 years and above, the lock-in period will be of four years.

Any individual could invest in these RBI taxable bonds, without any maximum investment limit. The minimum investment in the bonds starts at Rs 1,000.

An investor in these bonds can opt to receive interest payment either in cumulative or non-cumulative forms. Under the cumulative form, the interest will be payable along with the principal amount at the end of the maturity period. The interest will be compounded half-yearly. If the investor opts for non-cumulative form, then the interest will be payable at half-yearly intervals from the date of issue. As per RBI, "interest to the holders opting for non-cumulative Bonds will be paid from the date of issue up to 31st July / 31st January as the case may be, and thereafter half-yearly for the period ending 31st July and 31st January on 1st August and 1st February."

RBI started issuing these bonds with effect from January 10, 2018.

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