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Focus: GS-III Indian Economy

Why in news?

The Reserve Bank of India (RBI) released a notification last week announcing it was stopping the government of India 7.75% (taxable) bonds, known as the RBI 7.75% bonds.

Why were the7.75% bonds stopped?

  • A surge in demand in this relatively high interest rate instrument due to rate cuts in other government savings products may have prompted the stoppage.
  • The 7.75% bonds were a relatively costly way of government borrowing.

Various Other options for a fixed-income

Employees’ Provident Fund (EPF)

  • EPF is the low-risk option for salaried individuals, that is currently offering among the highest returns in the fixed-income space.
  • EPF matures at age 58 and is open only to organized sector employees and entails a 12% deduction of your basic salary plus dearness allowance matched by a 12% contribution by the employer.
  • The interest rate on EPF is linked to the performance of the investments and it is declared by the EPF Organization (EPFO) every year.
  • This interest is tax-free.

Click Here to Read more about EPF and EPFO

Public Provident Fund (PPF)

  • Public Provident Fund (PPF) is a tax-exempt product for non-sa;aroed individuals (on contribution, interest rate earned and withdrawal giving it the exempt-exempt-exempt or EEE status).
  • It is among products that give the highest interest rate at 7.1% per annum.
  • However, you can only invest up to ₹1.5 lakh per year in PPF.

Sukanya Samriddhi Yojana

  • Sukanya Samriddhi Yojana currently offers an interest rate of 7.6% per annum and can be invested in if one has up to 2 girl children.
  • This is an account that can be opened by the parents of a girl child under the age of 10.
  • It has a tenor of 21 years and an investment limit of ₹1.5 lakh per annum.
  • Contributions to it and the interest rate it pays are tax-free.

National Savings Certificates (NSCs) and Kisan Vikas Patras (KVPs)

  • These do not have investment limits.
  • They are issued by the government and can be purchased from banks and post offices.
  • Currently, NSCs pay an interest rate of 6.8% per annum and have a five-year tenor.
  • In NSCs, both the principal amount and interest earned are eligible for tax deduction.
  • KVPs have an interest rate of 6.9% and a tenor of 10 years and four months.
  • Interest earned in KVP is taxable at your slab rate.

Term deposits

  • post office FDs are part of India’s small savings universe and are fully backed by the government.
  • They are offered in maturities of one, two, three and five years at rates ranging from 5.5% for one year to 6.7% for five years.
  • The interest earned on term deposits is taxable at your slab rates.

-Source: Livemint

December 2023