RBI's variable rate bond looks attractive with an interest

RBI's floating rate bonds (FRBs) are a good investment option for investors looking for high safety and reasonably attractive returns. The interest rate on these bonds is not fixed, but is linked to the National Savings Certificate's (NSC) rate. RBI bonds offer NSC's interest plus another 35 basis points. Interest is paid out twice a year – in January and July.

How many interest rate increases in 2023

The current interest rate on FRBs is 8.05%, which is higher than the interest rates on other fixed income products such as bank deposits and government bonds. However, it is important to note that the interest rate on FRBs is not guaranteed and can change every six months. This means that if interest rates go down, your returns will also go down.

Overall, FRBs are a good investment option for investors who are looking for high safety and reasonable returns. However, they are not suitable for investors who are looking for guaranteed returns.

Here are some of the pros and cons of investing in RBI FRBs:

Pros:

High safety: RBI FRBs are backed by the full faith and credit of the Reserve Bank of India, which means that they are very safe.
Reasonable returns: The current interest rate on FRBs is 8.05%, which is higher than the interest rates on other fixed income products such as bank deposits and government bonds.
Tax benefits: Interest income from RBI FRBs is taxable, but you can claim tax deductions under Section 80C of the Income Tax Act.
Cons:

Interest rate risk: The interest rate on RBI FRBs is not fixed, but is linked to the NSC rate. This means that if interest rates go down, your returns will also go down.

Maturity risk: RBI FRBs have a maturity period of 7 years. This means that you will not be able to access your money before the maturity date.
If you are considering investing in RBI FRBs, you should carefully consider the pros and cons before making a decision.