GOI Saving Bond


Most nationalized banks offer interest rates of around 6-7% per annum for fixed deposits, most fixed-income investors are turning towards the government of India savings bonds also known as government bonds. Fixed income investors are increasingly finding investing in government bonds as a lucrative option. Moreover, the govt. bonds investment is a safe option as well, which ensures capital protection. Many investors also contemplate investing in capital bonds.

The government of India savings bonds were launched in 2003. These have a maturity of 6 years and can be bought anytime through specified distributors such as SBI & its associates, all nationalized banks, some private sector banks such as ICICI and HDFC, and through Stock Holding Corporation of India Ltd. These bonds can be bought by resident individuals, HUF, registered charitable trusts, the university established or incorporated by the Central State Provincial Act under sec 3 of the University Grants Commission Act 1956, or by father, mother, or a legal guardian on behalf of minors.

The rate of interest that these bonds offer is 8% per annum and the minimum investment is Rs.1000, which is the face value of a single bond. There is no upper limit on investment. Non-cumulative and cumulative are the two types of bonds that are available. In the case of non-cumulative, interest is paid out half yearly. For the first time, interest is calculated from the date of issue until Jul 31 or Jan 31, whichever is nearer. From here on, interest is paid out in half-yearly cycles ending July 31 and Jan 31 paid out on Aug 1 and Feb 1 respectively.

Interest in case of cumulative bonds would be compounded half yearly but would be paid out at the end of the tenure, which is 6 years. If you have invested Rs.1000 in cumulative bonds, you would get Rs.1601 at the end of the tenure. You are liable to pay taxes according to your tax slab on the interest earned through these bonds. TDS is deducted if your interest income exceeds Rs.10000 each year. The bonds cannot be traded on the market and are available only in physical form. Documentation for the bond, nomination, pledging the bond, and transfer in case of death of the holder can be done only in physical form. The bonds can be bought in a joint holding and nomination facility is available to a sole holder or a sole surviving holder. You can pledge the bonds to get a loan, but this facility is limited to loans from scheduled commercial banks. Transfer is possible only in the case of death of the bondholder, otherwise it is not possible. There is no online facility available for these bonds.



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