What are Floating Rate Bonds?

Floating rate bonds, also known as floaters, are government-backed securities with a dynamic interest rate. The coupon rate of these bonds change at fixed intervals depending on the linked benchmark like T-bills, National Savings Certificate (NSC), repo rates, etc. The floating rate bonds are one of the safest ways to invest in the Indian debt market.

These bonds are issued by the Reserve Bank of India on behalf of GOI and are considered the safest in the bond segment.

Features of Floating Rate Bonds

The features of floating rate bonds are as follows:

1. Minimum Investment: You can start investing in these bonds with a minimum of Rs. 1000 and in multiples thereof.
2. Maximum Investment: There is no upper limit on investment in floating rate bonds. You can invest any amount starting from Rs. 1000.
3. Tenure: The bond has a fixed maturity of 7 years.
4. Interest Payments: The interest is paid semi-annually. You will receive the interest on 1st Jan and 1st July every year.
5. Eligibility: All individuals and HUF can invest in floating rate bonds. Please note, NRIs are not eligible for investment.
6. Withdrawal: Premature withdrawal is allowed only to senior citizens under certain specific conditions.
7. Current Interest Rate: The current interest rate of the RBI floating rate bond is 8.05%. It is linked to the NSC rate plus a 0.35% spread.
8. Collateral: The RBI Floating Rate bonds cannot be pledged.

How Do Floating Rate Bonds Work?

The floating rate bonds are issued by the RBi periodically. You can either invest online or apply offline through your bank. Once invested, the RBI will pay on interest semi-annually on 1st January, and 1st July every year.

Your principal amount, i.e., the face value of the bond will be repaid to you on maturity. There is no option of pre-mature withdrawal. Only senior citizens can liquidate in-between under specific circumstances.