Things To Know Before Investing In Savings Bond

Fixed-income instruments have their own charm and allure. These instruments provide a fixed income despite the fluctuations in the market. This makes them prevalent instruments for people looking for fixed income, especially senior citizens. The Government of India introduced 8% taxable bonds to promote investment by individuals and families in 2003. In 2018, the old scheme was closed, and the Government introduced a 7.75% Savings Bond for subscriptions.
The Savings Bond is a popular debt instrument because the Government of India guarantees it. This gives it an added layer of security and assures the investor of both interest payment and principal redemption. This provides the Savings with Bond safety.
If you want to invest in Savings Bonds, this guide is for you. 

Investment Amount

The minimum investment for the Savings Bond is ₹1,000, with increments in multiples of ₹1,000. This allows flexibility for investors to start with a small amount and increase their investment based on their financial capacity. There is no upper limit, enabling substantial investment according to individual preferences.

Bond Maturity

The Savings Bond has a standard maturity period of 7 years. However, for senior citizens, the maturity is reduced based on age: 6 years for ages 60-70, 5 years for ages 70-80, and 4 years for those over 80. This adjustment benefits older investors with quicker returns.

Interest Payment

The Savings Bond offers an interest rate of 7.75%. Investors can choose between two options: cumulative or non-cumulative. The non-cumulative option provides semi-annual interest payments, while the cumulative option reinvests interest, resulting in a total payout of ₹1,703 for every ₹1,000 invested at maturity.

Eligible Investors

The Savings Bond is available for investment by resident individuals and Hindu Undivided Families (HUFs). This inclusive eligibility allows a broad range of investors to benefit from the bond’s attractive interest rates and secure returns.

Taxation Details

The interest earned on the Savings Bond is subject to taxation, similar to fixed deposit interest. Investors need to account for this when planning their tax obligations, as the interest income will be taxed according to prevailing income tax laws.

Transfer Restrictions

The Savings Bond cannot be transferred between individuals. This restriction ensures that the bond remains in the original investor’s name, preventing any changes in ownership or trading of the bond to another party.

Demat Account

The 7.75% Savings Bond is transferable to the investor’s Demat Account. Investors must approach a bank for investment, providing necessary details such as PAN and Demat Account information. This ensures secure and electronic management of the bond.

Trading Limitations

The Savings Bond cannot be traded on the secondary market and is not acceptable as loan collateral due to its non-transferability. This ensures the bond remains a secure and stable investment but limits its liquidity and use as loan security. 

Investing in Savings Bonds offers a secure fixed-income option backed by government guarantees, with flexible investment amounts and favourable terms for senior citizens. However, it's important to consider the taxation of interest, transfer restrictions, and lack of liquidity before investing. With its fixed return and reliable security, the 7.75% Government of India Savings Bond remains an appealing choice for those seeking stable returns and guaranteed safety.

Here’s all you need to know more about Savings Bonds!

Looking to invest in a Savings Bond? Approach your nearest HDFC Bank Branch to know more!

* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice before you take any/refrain from any action.