Gilts
With most investment avenues such as stocks, deposits in banks and NBFCs losing their sheen, investors are seen with a sigh of relief by heading towards bonds issued by the Reserve Bank of India. Currently there are two such bonds available in the market, the already existing 8% relief bonds and the recently launched 7% savings bonds. Both these bonds offer a moderate rate of return and are a safe haven to lock one’s funds with.
Eligible persons
8% Relief bonds (RB): individuals, both residents and NRIs can invest.
7% Savings bonds (SB): individuals being residents can only invest.
Amount of investment
Minimum amount that has to be invested in both the bonds is Rs.1000
Maximum amount
RB: Rs2 lacs. But a retired person can make investments beyond the said limit, provided he invests the retirement proceeds within 3 months of retiring.
SB: There is no maximum limit.
Mode of holding
The Relief Bond can be held at the credit of the holder in an account called bond ledger account (BLA) or in the form of promissory note.
The Savings Bond can be held either in the form of a BLA or in the form of stock certificate.
Availability
The RB and SB in the form of bond ledger account is issued and held with the public debt office of RBI, designated branches of agency banks and SHCIL as authorized by RBI.
The RB and SB in the form of promissory note and stock certificate are issued only at the offices of RBI.
Maturity
RB: 5 years
SB: 6 years
Interest
RB: 8% p.a payable either at half yearly intervals from the date of issue (OR) compounded with half yearly rests and will be payable after 5 years along with the principal at the option of the investor. Suppose if a person invests Rs.1000, he will get Rs.1480 at the end of 5 years, if he chooses the second option
SB: 7% p.a. payable either at half yearly intervals (or) compounded with half yearly rests and payable after 6 years along with the principal at the option of the investor.
Suppose if a person opts for the 2nd option, for an investment of Rs.1000, he will get Rs.1511 at the end of 6 years.
Transfer
Relief bond in the form of BLA can be easily transferred by execution of an instrument in the prescribed form. Bond in the form of promissory note can be transferred by endorsement and delivery.
Savings bond cannot be transferred except by way of gift to relatives.
Borrowings
RB: Can be given as the collateral security for obtaining loans from banks.
SB: Not eligible as a collateral security.
Tradeability
RB: Tradeable in the secondary market.
SB: Not tradeable in the secondary market.
Tax benefits
The interest on both RB and SB is exempt from tax under Section 10(15) of the Income tax Act. These bonds don’t attract wealth tax too.However, rebate u/s88 is not available on the bonds.
Though most of the benefits are common to both the bonds, the 8% bond stands out in terms of interest rate, transferability and maturity period and is a sure pick out of the two.
