RBI Floating Rate Savings Bond Vs PMVVY Vs SCSS

RBI Floating Rate Savings Bond Vs PMVVY Vs SCSS which is the best option for senior citizens? Replacing the 7.75% Government of India Savings Bonds, Government announced the Floating Rate Savings Bonds, 2020 (Taxable).

What are Floating Rate Savings Bonds?

Usually, when you invest in Bonds, the coupon (interest) what you get is fixed throughout the period. However, in the case of floating rate bonds, the interest is not fixed and it changes as per the specified bond feature.

Hence, such bonds are sensitive to interest rate fluctuation. It is not like your typical Bank FD, where you know well in advance the interest rate payable by banks for the full FD tenure.

The term of the bond is fixed. However, if you are not interested to retain the bonds, then you can sell it in the secondary market at the prevailing price of the bond if such bonds are eligible to trade.

RBI Floating Rate Savings Bond, 2020 (Taxable) Features and Eligibility

Government of India Floating Rate Savings Bonds, 2020 (Taxable) Features and Eligibility

In addition to above features, let me share certain important features of this bond.

# If holder of the bond turned NRI, then he can hold the bond up to maturity.

# The Bonds will be issued only in the electronic form and held at the credit of the holder in an account called Bond Ledger Account (BLA), opened with the Receiving Office.

# The interest on the bonds will be payable half-yearly from the date of the issue of the bond. Once on 30th June and another on 31st December yearly. As I mentioned above, there is no option of cumulate in this bond.

The interest will change on a half-yearly basis starting from 1st January 2021. This interest rate is linked to the prevailing interest rate of NSC (Post Office National Savings Certificate)+35 BPS (100 BPS=Rs.1). Hence, the coupon rate of Floating Rate Savings Bonds, 2020 (Taxable) for the period of 1st July 2020 to 31st December 2020 is fixed at 7.15%. Because the current NSC interest rate is 6.8%+0.35%=7.15%.

# Interest will be payable directly to the bond holder’s account.

# The bonds will repayable after the completion of 7 years. Premature withdrawal is allowed only for those whose age is 60 years and above subject to the submission of document relating to the date of birth proof. The minimum lock-in period for the age group 60 Yrs to 70 Yrs is 6 years. For 70 Yrs to 80 Yrs is 5 Yrs and for those whose age is beyond 80 years is 4 years.

# Even though you request for redemption as per your age slab, the redemption amount will be transferred with immediate next interest rate period. Hence, irrespective of your submission for premature withdrawal, Govt will process it either on 1st July or 1st January every year. Also, in such premature closure, Govt will deduct 50% of the last coupon payment.

I have written a detailed post about RBI Floating Rate Savings Bonds, You can refer the same for more details.

Features of Pradhan Mantri Vaya Vandana Yojana (PMVVY)

Let us now discuss about the features and eligibility of Pradhan Mantri Vaya Vandana Yojana (PMVVY) 2020- 2023.

Pradhan Mantri Vaya Vandana Yojana (PMVVY) 2020 - 2023 - Features and Eligibility

Some other features of this product are as below:-

# You can surrender this policy during the policy period under certain exceptional circumstances like pensioner requires money for treatment of any critical/terminal illness of self or spouse. Surrender value payable will be 98% of the purchase price.

# You can avail the loan facility after completion of 3 policy years. The maximum loan payable will be 75% of the purchase price. Interest on the loan will be recovered from the pension amount.

# Pension is payable at the end of each period, during the policy term of 10 years, as per the frequency of monthly/ quarterly/ half-yearly/ yearly as chosen by the pensioner at the time of purchase.

# Pradhan Mantri Vaya Vandana Yojana (PMVVY) scheme does not provide tax deduction benefit under section 80C of the Income Tax Act. Returns from this scheme will be taxed as per existing tax laws.

# There is no TDS on this product.

# During the policy period, the pensioner will receive the monthly, quarterly, half-yearly, or yearly pension as he has opted during the time of buying. On the death of the pensioner during the policy term, the Purchase Price will be refunded to the nominee (or legal heirs in the absence of nominee). If the pensioner survives up to the end of the policy term, Purchase Price and final installment of the pension will be paid to the pensioner.

# You can buy this through LIC (either online or offline).

Read a complete detailed post “Pradhan Mantri Vaya Vandana Yojana (PMVVY) 2020 – 2023 – 5 Changes you must know“.

Features of Senior Citizen Savings Scheme (SCSS)

# Anyone who attained the age of 60 years or above can invest in this product.

# NRIs and HUF are not allowed to invest.

# You can open Senior Citizen Savings Scheme either in the post office or with recognized 24 PSU banks and one private bank.

# Minimum investment is Rs.1,000 and maximum is Rs.15,00,000.

# The current interest rate is 7.4% and will change on quarterly basis.

# Interest will be payable on quarterly basis.

# Premature withdrawal is allowed but with certain conditions. In case the account is closed after the expiry of 1 year but before the expiry of 2 years from the date of opening of the account, an amount 1.5% of the deposit shall be deducted and the balance paid to the depositor. In case the account is closed on or after the expiry of 2 years from the date of opening of the account, an amount equal to 1% of the deposit shall be deducted and balance paid to the depositor.

# Account will not be extended automatically.

# You can extend for a period of 3 years after 5 years maturity period. However, you have to submit Form B within one year from the date of maturity.

# Also, such extended accounts can be closed after one year of extension without any penalty. Means after completion of 6th year, one can withdraw the amount without any penalty.

# Interest rate during such extension period will be as per prevailing rate of interest after 5 years maturity.

# Only one extension is allowed to the old account. Means after 5 years completion of SCSS, you can extend only for once. After that, the account will be matured.

# However, you are free to open one more account during the old account tenure or after maturity of old account subject to the maximum ceiling of Rs.15 lakh.

# Loan is not available.

# One can avail up to Rs.1,50,000 as a maximum benefit under Sec.80C by investing in SCSS scheme.

# Interest Income-Interest income is treated as taxable income. Hence, there is no tax benefits. It will be taxed as per your tax slab. TDS can be deducted on interest earned if it exceeds the minimum limit prescribed by the Government.

Read the complete post about SCSS at “Post Office Senior Citizen Scheme (SCSS)-Benefits and Interest Rate“.

RBI Floating Rate Savings Bond Vs PMVVY Vs SCSS – Which is the best?

Let us understand which is the best among RBI Floating Rate Savings Bonds Vs PMVVY Vs SCSS. I will try to compare all these products with respect to the features for your benefit.

# Tenure

RBI Floating Rate Savings Bond offers you 7 years. PMVVY is for 10 years and SCSS is for 5 years.

# Minimum and maximum investment

In case of RBI Floating Rate Savings Bonds, the minimum investment is Rs.1,000 and there is no maximum limit. However, in the case of PMVVY, the minimum investment is Rs.1,56,658 for a yearly pension of Rs.12,000 and maximum investment is Rs.15,00,000. In case of SCSS, the minimum amount is Rs.1,00,000 and the maximum is Rs.15,00,000.

# Interest rates

In the case of RBI Floating Rate Savings Bonds, the current coupon up to 31st December 2020 is 7.15%. However, as I pointed above, it will change twice in a year. Once in 1st July and another time on 1st January. Hence, you can’t expect a fixed interest on this bond. However, in the case of PMVVY and SCSS the current interest rates are 7.4%.

# Frequency of interest rate payment

In case of RBI Floating Rate Savings Bonds, the interest payment is a half-yearly basis. However, in case of PMVVY it is monthly, quarterly, half-yearly, or yearly. In case of SCSS, it is on a quarterly basis.

In case of RBI Floating Rate Savings Bonds, the interest rate will change once in 6 months. Once on 1st January and second time on 1st July every year.

In case of PMVVY, the interest will be revised on yearly basis. For SCSS, it is on quarterly basis.

However, if you invested in PMVVY and SCSS now, then the same interest rate will be applicable for you throughout the end. Even though the interest rate on PMVVY and SCSS change on a yearly and quarterly basis respectively, it is for NEW INVESTORS but not for the existing investors.

# Minimum Age

There is no such mention of a minimum age limit in RBI Floating Rate Bonds. However, in case of PMVVY and SCSS, the minimum age limit is 60 years.

# Liquidity

In case of RBI Floating Rate Bond, premature withdrawal is allowed only for those whose age is 60 years and above subject to the submission of document relating to the date of birth proof. The minimum lock-in period for the age group 60 Yrs to 70 Yrs is 6 years. For 70 Yrs to 80 Yrs is 5 Yrs and for those whose age is beyond 80 years is 4 years.

The Bonds are not allowed to transfer, trade or eligible for collateral.

In case of PMVVY, you can surrender this policy during the policy period under certain exceptional circumstances like pensioner requires money for treatment of any critical/terminal illness of self or spouse. Surrender value payable will be 98% of the purchase price.

In case of SCSS, in case the account is closed after the expiry of 1 year but before the expiry of 2 years from the date of opening of the account, an amount 1.5% of the deposit shall be deducted and the balance paid to the depositor. In case the account is closed on or after the expiry of 2 years from the date of opening of the account, an amount equal to 1% of the deposit shall be deducted and balance paid to the depositor.

# Loan facility

In case of RBI Floating Rate Bond, it is not eligible as collateral for availing loans from banks, financial Institutions and Non-Banking Financial Companies.

In case of PMVVY, you can avail the loan facility after completion of 3 policy years. The maximum loan payable will be 75% of the purchase price. Interest on the loan will be recovered from the pension amount.

In case of SCSS, you are not allowed to avail the loan by pledging it. Because this scheme is meant for regular income from your investment.

# Tax Benefits while investing and the returns

Let us discuss the tax benefits of RBI Floating Rate Bond Vs PMVVY Vs SCSS during an investment and the tax treatment of interest income.

Tax Benefits during investment

In the case of RBI Floating Rate Bond and PMVVY, there are no tax benefits. However, in the case of SCSS, you can avail the tax benefits of up to Rs.1,50,000 under Sec.80C by investing in this product.

Tax Benefits on interest income

In RBI Floating Rate Bond, Interest on the Bonds will be taxable under the Income Tax Act, 1961 as applicable according to the relevant tax status of the Bondholders. The interest payment is subject to TDS laws.

In case of PMVVY and SCSS, returns from these scheme will be taxed as per existing tax laws.

# TDS Facility

In case of RBI Floating Rate Bonds, tax will be deducted at source while making payment of interest. However, by submitting the Form 15G/H, you can avoid the TDS.

In case of PMVVY, there is no TDS. But in case of SCSS, TDS can be deducted on interest earned if it exceeds the minimum limit prescribed by the Government.

How to buy?

You can buy RBI Floating Rate Bonds from designated Banks.

You can buy PMVVY through LIC (either online or offline). However, in the case of SCSS, you can open the Senior Citizen Savings Scheme either in the post office or with recognized 24 PSU banks and one private bank.

Conclusion:-There is nothing called the best. However, with comparison to RBI Floating Rate Savings Bond Vs PMVVY Vs SCSS, you can easily decide which is the best for your requirement. All three products are SAFE. Hence, choose the products based on your actual requirements.

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2 Comments

  1. Hello Basu Ji
    I am a senior citizen and last year I invested Rs 5 lalh in SCSS @8.7% interest rate and accordingly I am getting the interest amount quarterly. Now I want to invest more in SCSS will I get the same interest rate as I am an existing customer or I will get the present interest rate of 7.5%

    Reply
    • Dear Pawan,
      You will get the current interest rate but not the earlier rate.

      Reply

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