RBI's floating rate savings bonds: Good fixed-income option?

Fixed-income investors, get ready to pop the champagne! The RBI Floating Rate Savings Bonds 2020 (Taxable), also known as FRSBs, is now a click away from your investment portfolio, thanks to the RBI-Retail Direct portal. This government-led online platform, launched by the Reserve Bank of India (RBI), is designed to streamline your government security investments. What makes this bond interesting? Picture this: an alluring 8.05 per cent interest rate on these bonds, a number that's hard to find these days. That too in a landscape where only the Sukanya Samriddhi Yojana (SSY) and the Senior Citizens' Savings Scheme (SCSS) dare to breach the 8 per cent mark. But there's a catch - the SCSS is a seniors-only party, and the SSY focuses on nurturing a brighter future for girl children. So, where does that leave the rest of the investor population hungry for hearty returns? Enter FRSBs, the investment that fills that void beautifully. That said, the interest you earn is taxable. Therefore, the post-tax interest rate will be lower for all investors in the higher tax bracket. Is it wise to invest in them? These are floating-rate bonds, meaning when interest rates are high, their yields are high, too. But when rates come d

This article was originally published on November 07, 2023.