Posted by: sanjayshetty | July 17, 2004

Bond… well ahem not the James Bond kinds :-)

RBI Bonds are popular instruments which people use in India. Especially for retired people there used to be pre-Mr. Chidambram’s budget an RBI bond which would give retired people tax free 6.5% interest. Unfortunately that’s on it’s way out. Instead a new Bond(they just don’t die) is supposed to replace this one. It will offer a higher rate of interest, rumors say 9% but unfortunately this is not a tax free bond 😦 So ineffect it’s not really doing to much assuming tax at the rate of 35% the highest tax bracket as of today the yeild due to this bond on say 100 Rs. would be a pathetic 5.85%. Thats lower than the earlier bond + it’s lower than the rate at which inflation in growing.

You would need to calculate how much money you’re actually going to make due to this bond, by seeing what tax bracket you fall in.

Sadly another investment option for most old people has just disappeared in INDIA. This is indeed a sad state of affairs.

Another point to note is that there is a ceiling on the maximum one can deposit into this RBI bond, 15 lacs to be precise. The time period for investment is 5 years for this specific bond, moreover you have to keep money atleast for a two year period.

Mr. Chidambaram made a very weird statement on Television(CNBC), in a recorded meeting with CII, to a question asked by a gentleman in the audience he replied, we know this(the earlier RBI Bond) was a place for the rich to park their funds, hence we’ve removed this bond and have kept a lockin period of about 2 years. Now that’s strange, which rich person/true investor, in their right minds would keep their money locked in a bond which gives a pathetic interest rate of 6.5%.


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