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RBI Savings Bonds: A Brief History
Piyush Prajapati 06 April, 2023

RBI Savings Bonds: A Brief History

The Reserve Bank of India (RBI) is the central bank of India, responsible for formulating and implementing the country's monetary policy. One of the many financial instruments that the RBI offers is the RBI Savings Bond, a government-backed investment product that offers a fixed rate of return.

The history of the RBI Savings Bond dates back to 1960, when the government of India first introduced a series of National Savings Certificates (NSCs) to encourage small savings among its citizens. These certificates were initially offered by post offices and later by designated banks as well.

In 1987, the government introduced the 7.5% RBI Savings Bond, which offered a fixed rate of return to investors. The Bonds in different amounts were issued of Rs. 1,000, Rs. 5,000, Rs. 10,000, and Rs. 50,000, with a minimum investment of Rs. 1,000. The bonds were initially issued with a maturity period of 3 years, which was later extended to 5 years in 2003.

Over the years, the RBI has issued several series of savings bonds, each with their own unique features and terms. In 1998, the government introduced the 8% RBI Relief Bond, which was aimed at raising funds for the relief and rehabilitation of earthquake victims in Gujarat. The bond offered a fixed rate of return of 8% per annum, with a maturity period of 3 years.

In 2003, the government introduced the 8% RBI Savings (Taxable) Bonds, which were aimed at providing investors with a safe and secure investment option that offered a higher rate of return than traditional savings accounts. The bonds were initially issued with a maturity period of 6 years, which was later extended to 7 years in 2018.

In 2018, the government introduced the 7.75% RBI Savings (Taxable) Bonds, which were aimed at providing investors with a fixed rate of return and liquidity. The Bonds in different amounts were issued of Rs. 1,000, Rs. 10,000, Rs. 1 lakh, Rs. 10 lakhs, and Rs. 1 crore, with a minimum investment of Rs. 1,000. The bonds have a maturity period of 7 years and can be prematurely encashed after 5 years.

In 2020 The Reserve Bank of India replaced the RBI Savings Bonds with Floating Rate Savings Bonds 2020 to give investors an alternative to fixed-rate savings options.

The bonds are issued in the form of a non-transferable certificate with a minimum investment of Rs. 1,000 and no maximum limit. The tenure of the bond is seven years, and investors have the option to exit after the fifth year. The interest rate is linked to the prevailing rate of the National Savings Certificate (NSC) and is reset every six months. The interest payment is made semi-annually.

The RBI also introduced a few key features to make the bonds more attractive to investors. For example, the bonds are exempt from tax deducted at source (TDS) for interest income up to Rs. 50,000 per financial year. Additionally, the bonds can be held in the name of an individual or jointly, with a maximum of three holders.

Overall, the RBI Floating Rate Savings Bonds 2020 provide investors with a flexible and attractive savings option, with a variable interest rate that reflects prevailing market conditions.

In conclusion, the RBI Savings Bond has a long and storied history, and has played an important role in encouraging small savings among Indian citizens. Over the years, the bonds have evolved to meet the changing needs of investors, and continue to be a popular investment option in India.

Piyush Prajapati 06 April, 2023

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