RBI Floating Rate Bond 2028

The RBI Floating Rate Savings Bond (FRSB) 2020 was launched in July 2020 as a replacement for the earlier 7.75% Fixed Rate Savings Bonds that were discontinued. Unlike its predecessor, the FRSB has a floating coupon rate reset semi-annually — on January 1 and July 1 each year — based on the prevailing NSC interest rate plus a fixed spread of 35 basis points. The NSC rate is set by the Ministry of Finance as part of the Small Savings Rate revision, typically adjusted quarterly. This floating rate design means that if interest rates rise in the economy and NSC rates are revised upward, FRSB investors automatically benefit from higher coupon payments in subsequent periods.

The bonds have a 7-year tenor with no premature withdrawal permitted for investors below 60 years of age. For senior citizens, early exit is allowed subject to a penalty: investors aged 60-70 can exit after 6 years, those aged 70-80 after 5 years, and those aged 80 and above after 4 years. This lock-in structure positions the FRSB as a medium-to-long-term savings instrument rather than a liquid alternative. The bond cannot be traded in the secondary market or used as collateral for loans from banks or NBFCs — a significant liquidity restriction compared to market-traded instruments.

The bonds are available in both physical (Bond Ledger Account or BLA) and electronic form through select scheduled commercial banks and the Stock Holding Corporation of India Limited (SHCIL). There is no maximum investment limit, and the minimum investment is Rs 1,000. Interest is paid semi-annually, directly credited to the investor's bank account. The interest income is fully taxable at the investor's applicable income tax slab rate — a key distinguishing factor from tax-free bonds, despite both being government-backed instruments.

The FRSB's floating rate nature provides a natural hedge against reinvestment risk — one of the primary drawbacks of fixed-rate long-duration instruments. An investor in a fixed-rate bond experiences declining purchasing power if inflation and interest rates rise, because the fixed coupon is locked at a lower-than-market rate. The FRSB mitigates this by automatically adjusting the coupon to reflect prevailing NSC rates. However, in a declining interest rate environment, this same mechanism works against the investor: coupon rates fall with each reset, reducing income in nominal terms.

For financial planning purposes, the FRSB competes with Senior Citizen Savings Scheme (SCSS, which currently offers 8.2% for the specific quarters) and Public Provident Fund (PPF at 7.1%) for long-term low-risk savings. Its advantage over bank fixed deposits is primarily the floating rate reset (which protects against rate rises) and the sovereign credit quality. Its disadvantage compared to debt mutual funds is the complete illiquidity and the lack of any indexation or special tax treatment. Retirees with a portion of their corpus in FRSB benefit from the regular semi-annual coupon income without market risk, though the locked nature requires careful liquidity planning.