CURRENT AFFAIRS
CURRENT AFFAIRS
Description
The Government of India has issued a Floating Rate Bond (FRB) maturing in 2034, with the Reserve Bank of India (RBI) proclaiming an interest rate of 8% for the Floating Rate Savings Bond (FRSB) 2034. This bond has a variable interest rate that resetss every six months to reflect market conditions.
Interest Rate Mechanism
The FRB's interest rate is determined by averaging the yields from recent auctions of short-term government debt, such as Treasury Bills. This rate varies every six months. From April 30, 2024 until October 29, 2024, the interest rate is 8%.
Additional Details
The 8% interest rate is based on the average of interest rates from the previous three auctions of short-term government debt, plus a predetermined additional amount of 0.98%.
FRBs have a seven-year maturity period, with a minimum investment of Rs 1,000 and no maximum limits.
Interest payments are made semi-annually, on January 1 and July 1, with no provision for cumulative interest payments.
Floating-rate bonds provide flexibility by modifying interest rates based on market conditions, making them ideal for conservative investors seeking consistent returns.
They are backed by the government of India, making them one of the most secure investment options.
While FRBs offer full capital protection, they lack inflation protection, which could result in no real returns if inflation exceeds the interest rate.
These bonds are neither listed nor traded, and loans cannot be made against them. Premature encashment is permitted with penalties for senior citizens following a minimum lock-in time that ranges from four to six years depending on age category.
Considerations For Investors
Floating-rate bonds are great for conservative investors looking for consistent returns over a certain time frame. However, they may not be suited for people ready to take on more risk in exchange for potentially better returns, who may prefer balanced mutual funds, bank fixed deposits, or company deposits.
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