RBI Floating Rate Bonds: Features, Pros and Cons
Why in the news
Weak returns on deposits and small savings are pushing cautious investors to RBI Floating Rate Bonds, which lock money for seven years.
About FRBs
Debt securities whose interest is not fixed; resetting against a benchmark guards investors against interest rate risk.
| Feature | Detail |
|---|---|
| Issuer | RBI for Government of India, or financial institutions |
| Rate | Benchmark-linked (T-Bill or G-Sec), reset at intervals such as 6 months |
| Tenure | Often 5 to 10 years |
| Face value | ₹1,000 typical for retail |
| Trading | Listed, can be sold before maturity |
Types
- Floating Rate Savings Bonds (Retail): for individuals, tied to short-term G-Sec rates.
- Institutional FRBs: for banks, mutual funds, insurers; larger lots.
Pros and cons
- Pro: returns climb as market rates climb; transparent benchmark link.
- Con: lower income if rates fall; harder for small investors to estimate returns; price swings on early sale.
Exam angle
- Lock-in: seven years; benchmark-linked coupon.