Other investments


Other investments

Fixed Deposits:

 

Fixed Deposit (FD) is an investment product which allows you to invest a lump of money for a fixed time period and at a fixed rate of interest.

 

When you open a fixed deposit with bank then you are lending money to the bank and it pays you interest. Each bank or financial institution that is offering fixed deposits fixes its own deposit rates. Interest rates are subject to change from time to time. Interest of FD varies based on the time period, amount which is deposited. Most of the banks offer higher interest rate to Senior Citizens.

 

During the course of the FD, even if the prevailing interest rates go up or down, you will be entitled to the rate of interest that was promised to you when you first made the deposit. Interest can be paid in two ways:

 

  • Interest can be paid on a monthly basis or on a quarterly basis called the Traditional scheme
  • Reinvestment scheme or Cumulative Fixed Deposits where the interest is compounded to the principal amount on a quarterly basis and the interest is reinvested into the fixed deposit. So, after every quarter the principal increases by an amount earned as the interest in the last quarter. The invested amount along with interest is available only at maturity.

 

Safety

 

Deposit of upto ₹ 1 lakh in any bank is protected under the Deposit Insurance & Credit Guarantee Scheme of India (DICGC).

 

 

Procedure to Open Fixed Deposit

 

At a bank branch where you have a saving account you can open a fixed deposit through Internet Banking, Phone banking or walk into the branch with a cheque.

 

In general, you can open a fixed deposit without a savings bank account. But then again, in every case, they require you to provide address proof and introduction. This hassle goes off if you have a savings bank account so that linking is easier.

 

Another point to note – bankers urge for a SB account if you are opting of any interest payment other than cumulative payment at the end. This is to facilitate easy interest payments.

 

 

Redemption

 

After maturity of your FD, you can walk into any branch of the Bank across the country and claim your deposit by furnishing your Fixed Deposit receipt/Memorandum of Deposit. If you have an account with the bank and you have not opted for auto-renewal then the money gets credited into your saving bank account.

 

 

Auto Renewal

 

Auto renewal allows your FD to get renewed automatically for the same period as the original deposit. However under auto renewal option the fixed deposit receipt is with the custody of the Bank and Memorandum of Deposit (MOD) is issued in lieu of fixed deposit receipt. You can opt for auto renewal at the time of opening the FD or any time before the FD matures. In case of renewed deposits, the new deposit amount consist of the: original amount + interest -Tax Deduced at Source (if any).

 

 

Premature Closure of Fixed Deposit:

 

Fixed Deposit can be closed before the original term of the FD maybe because you need money or you want to reinvest at higher rates. In the event of the Fixed Deposit being closed before completing the original term of the deposit, interest will be paid at the rate applicable on the date of deposit, for the period for which the deposit has remained with the Bank. In case of premature withdrawal the deposit may be subject to penal rate of interest as prescribed by the Bank on the date of deposit. RBI has left it to banks to decide whether they want to impose any penalty on premature closure of fixed deposits.

 

Loan on FD (Fixed deposit):

 

When you invest in a bank fixed deposit, you can easily get a loan against it without having to break it. This is similar to a personal loan. However, the loan is structured as an overdraft facility against your fixed deposits.

 

  • There is no specific tenure; you can avail of the loan till the deposit matures. If unpaid till maturity, the loan is adjusted against the fixed deposit proceeds.

 

  • Banks offer a loan anywhere between 75 and 90 per cent of the deposit after maintaining a 10-25 per cent margin. The latter may vary with each bank and every customer.

 

 

  • Interest will be charged on the amount drawn and not the limit set. It is around 2-2.5 per cent over the fixed deposit rate

 

  • When can you borrow after opening the fixed deposit. It varies from bank to bank. Certain banks, such as Punjab National Bank, allow loans from the very next day of making the deposit. Some like HDFC may even offer one after six months. You need to check with your bank on the same.

 

 

  • There are no prepayment penalties to foreclose the loan.

 

  • There is no restriction on the end use of funds. It can be used to meet financial requirements, business, and direct investment in India or for buying property.

 

 

  • Salaried individuals cannot get tax benefits on the interest paid on loans against fixed deposits. Self-employed individuals using the funds for the purpose of business can deduct the interest paid as a business expense from their business income and pay tax on the remaining amount only.

 

 

Taxation of FD:

 

Interest received from fixed deposits is taxable in the hands of the receiver. Also Tax is deducted by the bank, after a threshold. If the aggregate interest income from fixed deposits that you are likely to earn for all your deposits held in a branch is greater than ₹ 10,000 in a financial year, you become liable for TDS.

 

Interest Earned on

Whether TDS is Applicable

Whether Income Tax is Payable on Interest income

How to Avoid TDS

Fixed Deposits

Yes, if the interest income from all such deposits exceeds Rs10,000/- in a FY.  (TDS is deducted at 10% if PAN submitted or else it will be deducted at 20%)

Interest earned is fully taxable and full interest income (including accrued)  should be included as your income at the time of filing the IT return.  However you can claim credit for all the TDS deducted by your bank for which bank has given you Form 16-A and shown in AS26.

Submit Form 15 G / 15 H, if you are eligible to submit the same. (See the details given below)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax Saver FD or 5 Year Tax Saving Fixed Deposits:

Tax Saving Fixed Deposits one of the most popular way to save taxes u/s 80C of income tax.

 

If you invest in a tax saving fixed deposit you can claim the amount invested up to ₹ 1.5 lakh as a deduction from your income, as per current tax laws. The amount so invested is to be deducted from gross total income to arrive at taxable income. This deduction is allowed under Section 80C of the Income Tax Act.

 

Normally, tax saver deposits are of two types –

 

1. “Single holder Type Deposits" and

2. “Joint holder Type Deposits”. Such deposits are offered for a lock-in

     period of 5 years.

 

Below are some of points to keep in mind while investing in Tax Saving Deposits:

 

 

  • Only Individuals and HUFs can invest in tax saving fixed deposit (FD) scheme.

 

  • The FD can be placed with a minimum amount which varies from bank to bank.

 

  • These deposits have a lock-in period of 5 years. Premature withdrawals and loan against these FD's are not allowed.

 

 

  • Investment in Post Office Time Deposit of 5 years also qualifies for deduction under section 80 (C) of the Income Tax Act, 1961.

 

  • Post Office Fixed deposit can be transferred from one Post office to another.

 

  • One can hold these FD's either in 'Single' or 'Joint' mode of holding. In the case the mode of holding is joint, the tax benefit is available only to the first holder.

 

  • The interest earned is taxable as per the investor's tax bracket and therefore, TDS is applicable. The interest on deposits is payable on either monthly/quarterly basis or can be reinvested.

 

  • Nomination facility is available for these FDs.

 

  • Most banks offer slightly higher interest rates on FDs to senior citizens (as compared to the interest rate offered on the same FD to a non-senior citizen).

 

  • As the Tax Saving FD scheme was introduced in Budget of 2006, it’s also known as Tax Saving Deposit scheme 2006 (Notification Number 203/2006 and SO1220 (E) dated 28/07/2006).

 

  • Most banks give Senior citizens and their staff members additional interest of 0.25% to 0.5%.

 

 

  • Depositor can opt for either cumulative or non-cumulative way of crediting periodical interest.

 

  • Be cautious of small co-operative banks as they have higher risk than bigger private and public sector banks.

 

 

  • Depositor gets benefit U/s.80C of the Income Tax Act. 1961.

 

  • Maximum deposit in a Financial Year ₹1,50,000/- [i.e., 1 st April to 31 st March of the following calendar year].

 

 

  • Deposits cannot be withdrawn prematurely.

 

  • Deposits cannot be pledged to secure loan or as security.

 

Company Fixed Deposits:

 

Deposit(s) in Companies that earn a “fixed rate of return” over a period of time are called Company Fixed Deposits. Financial Institutions and Non-Banking Finance Companies (NBFCs) accept such deposits.

 

Acceptance of deposits by companies are governed by the applicable provisions contained in the Companies Act, 1956 (soon will be governed by the Companies Act, 2013) and the Companies Acceptance of Deposit Rules (currently, Companies (Acceptance of Deposit) Rules, 1975. In due course, the new Rules under the Companies Act, 2013 is expected to be notified).

 

 

These deposits are currently unsecured in nature.

 

However, there are certain proposed provisions included in the Companies Act, 2013, wherein it is likely that the said deposit could be secured

 

 

Benefits of investing in Company Fixed Deposits:

 

  • High interest.

 

  • Short-term deposits.

 

  • Minimum lock-in period is 6 months.

 

  • No Income Tax is deducted at source if the interest income is up to ₹ 5,000 in one financial year

 

 

 

 

 

 

 

 

 

Corporate Fixed Deposits are best suited for investors who want to earn fixed returns on their investments. Our rich menu of AAA and AA rated fixed deposits of varying tenures provide stability to your portfolio amid volatile markets.

 

 

 

Selection of a Corporate FD:

 

  1. Credit Rating: It indicates the underlying risk of the company. Hence it is better to opt for highly rated FDs.

 

  1. Company Background: It can be assessed through its financials and the viability of its business.

 

 

  1. Repayment History: Companies with a better repayment history are a safer bet for investors.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-convertible debenture (NCD):

 

There is always demand for good-rated investment products which can offer attractive returns. Keeping this in mind, companies keep on coming with debenture issues to raise capital from the market. In the current scenario, when equity markets are not doing well, NCDs have become more important from the investor point of view as these offer attractive returns with the benefit of liquidity.

 

 

NCDs might be the answer to your quest for the investment instrument that offers high returns with moderate risk while giving you the flexibility of choosing between short and long tenures.

 

An NCD is a fixed-income debt paper issued by a company. In other words, the issuer agrees to pay a fixed interest on your investment. As the name suggests, these debentures cannot be converted into shares of the issuing company like convertible debentures where investors have the option of getting shares in the issuing company on conversion.

 

An NCD can be both secured as well as unsecured. For secured debentures, which are backed by assets, in case the issuer is not able to fulfil its obligation, the assets are liquidated to repay the investors holding the debentures.

 

Secured NCDs offer lower interest rates compared with unsecured ones. If you want a regular income from NCDs, you can pick those that pay interest on a monthly, quarterly or annual basis. If you just want to grow your wealth, you can opt for cumulative option where the interest earned is reinvested and paid at maturity.

 

Companies seeking to raise money through NCDs have to get their issue rated by agencies such as CRISIL, ICRA, CARE and Fitch Ratings. NCDs with higher ratings are safer as this means the issuer has the ability to service its debt on time and carries lower default risk.

 

A bank fixed deposit or savings certificates issued by the postal department is for a maximum of five to seven years. In contrast, NCDs are available from two years to as much as 20 years. You can use long-tenure NCDs to create a retirement corpus.

 

ASSESSING RISKS IN NCDs:

 

An investment offering higher returns invariably comes with additional risk.

 

The biggest risk with NCDs is the possible capital loss in case of increase in interest rates. But investors willing to wait till maturity need not fear the same.

 

NCDs have a fixed coupon or interest which is paid to the holder of the instrument at maturity. If you sell an NCD in the secondary market when the interest rate is higher than that being offered by the debenture, your return will be less or even negative as the buyer will pay only that amount which allows him to get the return equal to the prevailing market rate. If the interest rate goes down, your effective return will be higher than that being offered on the NCD.

 

Apart from the risk of lower return or loss of capital, there is the risk of default by the company even though the chances are low as most of the firms are under supervision of the RBI and SEBI. As NCDs are mostly secured against assets of the issuing company, risk of default is low. In addition, debentures of blue-chip companies have less risk as these firms have robust finances. Small companies have more risk and so offer higher rate of interest.

 

Amid the turbulent stock markets, NCDs offer attractive returns with the benefit of liquidity.

 

NCDs are also listed on bourses. This allows investors to liquidate the bonds even before maturity. However, there is no active market for NCDs on the wholesale debt market segment of the stock exchanges and their liquidity is low. You might not be able to find a buyer for your NCDs if their trade volumes on bourses are insignificant.

 

Huge debt obligations of a company mean it might have trouble repaying its debt. So you should see the debt-equity multiple of the issuing company before investing. There is no fixed acceptable level for the debt-equity ratio as it depends on the business of the company. For example, an NBFC, which is in the business of borrowing and lending money, can have a debt-equity multiple of five to six times without putting any unnecessary strain on its debt-servicing power.

 

 

TAX IMPLICATIONS:

 

Interest earned through NCDs, if held until maturity, is clubbed with your income and taxed at your marginal income tax rate. If you sell your NCDs on the stock exchange before a year then you will have to pay short-term capital gains at income-tax rates applicable to you. If the debenture is encashed after one year but before its maturity, you will have to pay capital gains tax on the effective return.

 

 

NCDs provide you the opportunity to earn 2-3 percentage points higher return than other fixed-income instruments such as bank fixed deposits. Use them wisely to diversify your debt portfolio. If you are looking at a short-term investment option, NCDs can offer you the right instrument for you.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring deposits:

 

 

The recurring deposit (RD) is one of the most basic financial products available it the market. It can be used as a tool to inculcate the habit of saving.

 

An RD is a type of term deposit offered by banks and non-banking financial companies.

 

 

There are two types of RDs-regular and flexible.

 

A regular RD is offered by all banks, while only some offer flexible ones. A regular RD allows you to deposit a pre-specified amount at pre-decided intervals. It becomes a compulsory investment. The instalment amount once fixed, cannot be altered.

 

 

For instance, if you sign up with a bank to invest R1,000 every month for 12 months in a regular RD, you will have to invest the specified amount at a fixed date every month. In a flexible RD, you can deposit any amount, on any day, and any number of times. Other than visiting the branch to open an RD, nowadays many banks allow you to open using the Net banking facility as well.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comparision between FD & RD:

 

When you compare both these products, a fixed deposit fetches you more income than a recurring deposit. Lets’ assume you have invested ₹ 24000 in a fixed deposit at start of the year and ₹ 2000 p.m. in a recurring deposit for a year. Both these products offer you a 9% rate of interest compounded quarterly. This is what you will earn from these two instruments:

 

 

Fixed Deposit

Recurring Deposit

Invested Amount (₹)

24000

2000 p.m.

Interest Rate (p.a.)

9% compounded quarterly

9% compounded quarterly

Total Interest earned in a  year (₹)

2234

1195

Total Amount after One Year (₹)

26324

25195

Difference in maturity amt (₹)

1039

 

 

As you can see, after a year you will receive ₹ 26324 in a fixed deposit while in RD you will receive ₹ 25195. So the recurring deposit earns you ₹ 1039 less than a fixed deposit.

 

The primary reason for this difference is that in FD you invest a lump sum amount and so the entire money earns interest for one year. But in a recurring deposit the first installment earns interest for 12 months period, the second for 11 months, third for 10 months and so on. Due to this variation FD is able to fetch a higher maturity.

 

 

 

 

 

 

 

 

 

 

Recurring Deposits for NRI/NRE:

 

One of the best investment options for NRIs/NREs is a recurring deposit account. Huge savings can be made using small monthly investments. NRIs can either invest in either NRO or NRE Recurring Deposit accounts.

 

  • NRE RD Accounts: In this savings option, the investments towards deposit installments are credited from the NRE accounts. An NRE is a non-resident external account, where the accrued is exempted from taxes in India. This account can also be moved back to the investor’s home country, without any hassle.

 

  • NRO RD Accounts: For these accounts, the investments towards the deposit installments can come either from NRE or NRO accounts. NRO are non-resident ordinary accounts. The interest from NRO RDs is taxable at a rate of 30%, plus the additional CESS. This is repatriable, subject to certain featured requisites.

 

Senior Citizens Recurring Deposit:

 

A recurring deposit account enables an individual to deposit fixed amount every month for a pre-defined period which earns interest similar to Fixed Deposits (FD). RDs can be availed by senior citizens as well. The interest rates for senior citizens deposits are higher than the regular account. For this, the minimum amount and tenure are fixed by the bank. The interest on RD is compounded on quarterly basis. Most banks offer senior citizens an additional interest rate of 0.25% to 0.75%, as compared to regular recurring deposits.

 

 

Withdrawals:

 

You cannot partially withdraw from most bank RDs. However, post offices allow you to make a partial withdrawal one year after opening your deposit. You have to pay a penalty of between 0.5 and 2% for these withdrawals. Banks allow you to take a loan against your RD of between 60-90% of your deposit value. Interest rates on these loans are usually 0.5-2% per annum above the interest rate of the RD.

 

In case of default:

 

If you’ve missed four to six instalments (varying from bank to bank), the bank can discontinue your account. You can revive the account by paying the outstanding money within one month from the last default. The interest applicable will be in accordance with the bank’s premature withdrawal policy.

 

 

Other benefits:

 

You can take a loan or an overdraft, up to 90 per cent of the balance, against the recurring deposit. During an emergency, this may be a better option than withdrawing your saving as the deposit keeps earning interest and you get a loan at a rate lower than a personal loan.

 

 

Nomination of Recurring Deposits:

 

The Recurring Deposit also comes with a nomination facility. Whether held singly or jointly, there can be only one Nominee for a deposit account. Account holders can change the nominee of the recurring deposit account and also make other changes by making a declaration which is effective in the appropriate form. A minor can be made a nominee of a recurring deposit account with a proper guardian cited to supervise.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Tax on Recurring Deposit:

 

Tax Deducted at Source (TDS) is applicable for recurring deposits on the interest earned. The tax is paid according to the tax slab of the account holder. The TDS is effective from June 01, 2015. For instance, if the RD is for ₹ 10,000, then 10% is deducted as TDS by the bank. Individuals whose income doesn’t fall under the taxable slab are required to submit Form 15G to avoid TDS being deducted on their recurring deposit accounts.

 

Interest Earned on

Whether TDS is Applicable

Whether Income Tax is Payable on Interest income

How to Avoid TDS

Recurring  Deposits

Yes, if the interest income from all such deposits exceeds Rs10,000/- in a FY.  (TDS is deducted at 10% if PAN submitted or else it will be deducted at 20%)

Interest earned is fully taxable and full interest income (including accrued)  should be included as your income at the time of filing the IT return.  However you can claim credit for all the TDS deducted by your bank for which bank has given you Form 16-A and shown in AS26.

Submit Form 15 G / 15 H, if you are eligible to submit the same. (See the details given below)

 

 

 

 

 

 

 

 

 

 

 

Post office Monthly Income Scheme:

 

If you are looking for a decent capital gain with a secured investment option then Post of Monthly Income Scheme (POMIS) may end your search. Generally, we end up parking our funds in fixed deposits and in other debt investments plans but POMIS promises better benefits as compared to others. Let’s have a look at what POMIS is, how it functions and what all it offers.

 

Post Office Monthly Income Scheme plan is one of the many investment options offered by Post Office in India. Apart from delivering mails, post office offers a bouquet of services that include sale of forms, bill collection, savings schemes, life insurance cover etc.

 

Schemes offered by Post Offices are risk free as there is no touch of equity in them. POMIS is also one such scheme.

 

Investment objective

The main objective of the POMIS is to provide an assured monthly return to account holders and help them create a guaranteed regular income. Though it offers no tax incentives, it is a preferred instrument amongst small savers for the government backing that this product offers.

 

Maximum amount that can be invested into the Monthly Income Scheme:

 

Account Type

Maximum Amount Allowed

Single

₹4,50,000

Joint

₹9,00,000

 

Applicants must note that, the maximum amount that is allowed is calculated on an individual basis, even if the customer holds a joint account.

 

 

 

 

 

 

 

Post Office Monthly Income Scheme features:

 

 

  • Capital protection:

 

The capital in the POMIS is completely protected as the Scheme is backed by the Government of India, making it totally risk-free with guaranteed returns.

 

  • Inflation protection:

 

The POMIS is not inflation protected, which means whenever inflation is above the current guaranteed interest rate, the return from the Scheme earns no real returns. However, when the inflation rate is below what it offers, it does manage a positive real rate of return.

 

  •  

 

The interest rate for the POMIS is guaranteed and is currently 7.80 per cent per annum for the first quarter of 2017-18–17. The interest is paid out monthly. The interest rates will be notified every quarter in line with G-sec rates of similar maturity, with a spread of 0.25 per cent. The interest applicable to you for the duration of the deposit will be the rate at which you make the deposit.

 

 

  •  

 

The POMIS is liquid despite the five-year stipulated lock-in. Liquidity is offered in the form of withdrawals.

 

 

  • Credit rating:

 

As the POMIS is backed by the Government of India, it does not require any commercial rating.

 

 

  • Exit option:

 

Premature closing of the account is permitted with penalty.

 

  • Other risks:

 

There are no risks associated with this investment.

 

  • Tax implications:

 

There is no tax benefit on the investment or the income earned from this scheme.

 

Others benefits:

 

  • Portability of the account between post offices is possible.
  • Reinvestment on the maturity of the account is possible.
  • Maturity proceeds not drawn are eligible to savings-account interest rate for a maximum period of two years.
  • Interest income is taxable but there is no tax-deducted-at-source (TDS) certificate issued.

 

 

Where to open an account of Post Office Monthly Income Scheme?

 

You can open the account at any head or general post office.

 

 

 

 

 

 

 

 

 

 

 

 

 

Procedure to open a Post Office Monthly Income Scheme account:

 

You will first need to open a post-office savings account to link the monthly payout from your MIS account and you will need the following documents?

 

  1. An account-opening form, which the post office will provide
  2. Two passport-size photographs
  3. Address and identity proof such as the Aadhaar card; passport; PAN (permanent account number) card or declaration in the Form 60 or 61 as per the Income Tax Act, 1961; driving licence; voter’s identity card; or ration card.
  4. Carry original identity proof for verification at the time of account opening.
  5. Choose a nominee and get a witness signature to complete the formalities to get started.

 

 

Operation of the account:

 

You need a pay-in slip with the initial account-opening sum to be credited into your account.

 

 

 

Pre-mature Withdrawal from Post-Office monthly Saving Scheme:

 

Even though the maturity period for POMIS is 6 yrs , there is facility to break it and take your money out. However you can take your money only after 1 year. You have to pay some penalty which is as follows

 

  • If you break it within 1-3 yrs : 2% penalty on Deposit amount
  • If you break it after 3 yrs : 1% penalty on Deposit amount

 

 

 

 

 

 

 

 

 

Inflation Indexed National Saving Securities - Cumulative (IINSS-C):

 

 

The inflation index:

 

Inflation rate will be based on the final combined Consumer Price Index [(CPI) base: 2010=100].

 

The final combined CPI will be used as reference CPI with a lag of three months. For example, the final combined CPI for September 2013 will be used as reference CPI for whole of December 2013.

The customers should be issued the securities after receiving clear money. After receiving clear money, banks should register the customer on CBS and generate Certificate of Holding.

 

The application form can be downloaded from the RBI’s website. However, banks shall also get forms printed and made available to the investors.

 

Product features:

 

  • The Inflation Indexed National Savings Securities-Cumulative (IINSS-C) bonds will offer investors a return that's 1.5% more than inflation based on the consumer-price-index. Interest will be compounded half yearly, enhancing effective yield on investments.
  • The minimum investment limit is ₹ 5,000/- (five thousand).
  • The maximum limit is ₹ 500,000/- (five lakh) per applicant per annum.

 

  • Only retail investors would be eligible to invest in these securities. The retail investors would include individuals, Hindu Undivided Family (HUF), charitable institutions registered under section 25 of the Indian Companies Act and Universities incorporated by Central, State or Provincial Act or declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956).

 

 

Eligibility:

 

Only retail investors would be eligible to invest in these securities. The retail investors would include individuals, Hindu Undivided Family (HUF), charitable institutions registered under section 25 of the Indian Companies Act and Universities incorporated by Central, State or Provincial Act or declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956).

 

 

 

Interest rate on these securities:

 

There will be two parts in the interest rate. One, fixed rate of 1.5% per annum and second, inflation rate.

 

For example, if inflation rate during the six months is 5%, then interest rate for this six months would be 5.75% (i.e. fixed rate -0.75% and inflation rate -5%).

 

Fixed rate of 1.5% would act as a floor, which means that 1.5% per annum interest rate is guaranteed if there is deflation.

 

For example, if inflation rate is (-) 5%, then interest rate should be (-) 3.5% by simple calculation. But in such case, negative inflation will not be recognized and investors would get fixed rate of 1.5% (please see example 2 at 23).

 

 

Interest calculation:

 

Interest will be accrued and compounded in the principal on half-yearly basis and paid along with principal at the time of redemption.

 

 

Redemption:

 

On redemption, investors will get principal and compounded interest.

 

 

 

 

 

 

Process of investing:

 

Investors can invest through the authorised banks and Stock Holding Corporation of India (SHCIL).

 

They will fill an application form and submit the same along with other documents and payment to the bank.

 

On receipt of money, the bank will register the investor on the RBI’s web-based platform (E-Kuber) and on validation, generate the Certificate of Holding.

 

 

Form of these securities:

 

These securities will be issued in the form of Bonds Ledger Account (BLA).

 

The securities in the form of BLA will be issued and held with RBI and thus, RBI will act as central depository.

 

A certificate of holding will be issued to the holder of securities in BLA.

 

After receiving the money and registration of the investor on RBI’s CBS (E-Kuber), the RBI will open a BLA for each investor and issue a “Certificate of Holding” indicating number of units of IINSS-C held by the investor.

 

 

 

Authorized banks for Inflation Indexed National Saving Securities - Cumulative (IINSS-C):

 

 

The authorized banks are SBI & Associates, Nationalized Banks, HDFC Bank, ICICI Bank, and Axis Bank.

 

Customers can approach any of the authorised banks, including SHCIL for such investment irrespective of whether they hold an account or not with that bank.

 

The banks through which these securities have been purchased will provide other customer services.

 

Investors can approach the banks for other services such as change of address, early redemption, nomination, lien marking, etc.

 

And also joint holding is allowed.

 

 

 

Minimum and maximum limit for investment:

 

The minimum investment limit is ₹ 5,000/- (five thousand).

 

The maximum limit is ₹ 10 lakh per annum for eligible individual investors and ₹ 25 lakh per annum for institutions such as HUFs, Charitable Trusts, Education Endowments and similar institutions which are not pro-profit in nature.

 

 

Premature redemption:

 

Premature redemption is allowed.

 

For senior citizens above 65 years, the premature redemption is allowed after one year. For others, it is allowed after 3 years.

 

Penalty at the rate of half of the last payable coupon will be charged from the investors. For example, if last payable coupon is ₹ 1,000/-, then ₹ 500 would be charged as penalty.

 

 

Redemption of these securities:

 

In case of redemption prematurely before the maturity date, investors can approach the concerned bank few days before the coupon date and apply.

 

In case of redemption on maturity, the investor will be advised one month before maturity regarding the ensuing maturity of the bond advising them to provide a Letter of Acquaintance, confirming the NEFT account details, etc.

 

If everything is in order, the investor has to be paid immediately on the maturity date for payments through electronic mode and within maximum five days for any payment through physical instruments.

 

Securities transferability:

 

Transferability is allowed to the nominee(s) only for individual investors on death of holder. Transferability is not allowed for other investors

 

Use of these securities as collateral for loans:

 

Yes, these securities are eligible to be used as collateral for loans from banks, financial Institutions and Non-Banking Financial Companies, (NBFC).

 

As per extant RBI’s guidelines, banks will be free to decide interest rate on loans against these securities, subject to the condition that such interest rate is to be at base rate or above.

 

 

Tax implications:

 

Existing taxation applicable to Government of India securities issued as part of the market borrowing will be applicable to these securities.

 

Sub-section (iv) of the Section 193 of the Income Tax Act, 1961 stipulates that no tax shall be deducted from any interest payable on any security of the Central Government or a State Government, provided that nothing contained in this clause shall apply to the interest exceeding rupees ten thousand payable on 8% Savings (Taxable) Bonds, 2003 during the financial year.

 

As per the above Section, TDS shall not be deducted from any interest payable on IINSS-C, until and unless notified by the Government of India otherwise.

 

 

 

 

 

8% (Taxable) GOI Savings Bonds, 2003:

 

Features

Maturity Period

6 years

Rate of Interest

8.0% per annum (Taxable)

Risk Attached

Low Risk

Minimum Inv

1,000/-

Collateral Facility

Available

Overall Liquidity

Not tradable

Date of Issue

Date of realization of the funds

 

100% risk free investment option.

 

Non-cumulative (half yearly):

 

Interest to the holders opting for non-cumulative bonds will be paid from date of issue up to 31st July/31st January as the case may be and thereafter half yearly for period ending 30th June /31st December on 1st August and 1st February

Cumulative Interest at the rate of 8% per annum compounded with half yearly rests and will be paid to the investor on maturity along with principal. (The maturity value of the bonds shall be ₹ 1601.00/- for every Rs1000/-) (Subject to TDS as applicable)

 

Tax Concessions:

 

Interest on the Bond will be taxable under Income-Tax Act, 1961

 

The bonds will be exempt from Wealth-Tax under the Wealth-Tax Act, 1957

 

 

 

 

 

 

 

 

Nomination:

 

This facility will be available for Individual investment on sole holder or surviving holder basis. Customer can provide nomination by applying in Form B.

 

 

Eligibility for 8% (Taxable) GOI Savings Bonds, 2003:

 

  • An individual

 

  • Who is not a Non-resident Indian

 

  • In his or her individual capacity or

 

  • On joint basis, or

 

  • Anyone or survivor basis, or

 

  • On behalf of a minor as father/mother/legal guardian.

 

  • Hindu Undivided Family

 

 

  • An Institution

 

Charitable Institution under section 25 of the Indian Companies Act 1956.

Institution obtained Certificate of Registration as charitable institution.

Any Institution which obtained certificate from Income Tax Authority

U/S 80G of Income Tax Act, 1961.

 

 

 

 

 

 

 

 

"UNIVERSITY" established or incorporated by Central, State or Provincial Act, U/S 3 of University Grants Commission Act, 1956

(3 of 1956).

 

 

LOAN

 

The Bonds are not tradable in the secondary market and shall not be eligible as collateral for loans from Banks, financial institutions and Non-Banking Financial Companies.(NBFCs).

 

 

SUBSCRIPTION

 

Subscription to the Bonds will be in the form of Cash/Drafts/Cheques or matured Relief Bond/s in the name of applicant/s

 

REPAYMENT

 

Repayable on expiry of 6 years from the date of issue. Premature encashment of the Bonds is not allowed.

 

INTEREST

 

The present rate of interest is 8% per annum.

 

REPAYMENT OF INTEREST

 

Non-cumulative:

Interest is paid half yearly intervals at the end of June and December, every year by cheque or to the credit of Bank account.

 

Cumulative

Interest is compounded with half yearly rests, will be paid to the investor on maturity along with the principal.