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.
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.
- 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.