Know What is a Savings Bond & its Key Features

To many people, investing in a bond means something out of their financial limits. This is because of the belief that bonds require a huge minimum investment to be made, and only big mutual fund houses, or high net worth individuals invest in them. While there are limits on minimum investments for bonds, are there any bonds that are useful investment options for small investors?

Yes, there are. This option is called a Savings Bond.

What is a Savings Bond?

A Savings Bond is a bond where the limits for investment are set low so that people can invest easily. Instead of a high limit for entry, the Savings Bond has a low entry threshold to make it affordable to anyone who wants to invest and earn income from such bonds.

In India, the Government introduced an 8% Savings Bond in 2003 and replaced it with a 7.75% bond in 2018. The minimum investment required for this bond is Rs. 1,000 which makes it affordable for many investors. The investment can be increased in multiples of Rs. 1000, to make it simpler for people to increase their investment.

Now that we have discussed the Savings Bond definition, let us examine the features.

Features of the Savings Bond:

  • The bond is open for investment to all resident individuals, and Hindu Undivided Families. This means Non-Resident Indians cannot invest in it.
  • You can apply online or offline for the bonds. Several banks provide this investment facility in their branches. You can download a form online, or take a form from one of their branches, fill it up and the banks will process the investment.
  • The Savings Bond is issued in a Demat form. It is credited to the Bond Ledger Account of the investor. The bank gives a certificate of holding to the investor as proof of the investment.
  • The interest on the Savings Bond is payable every six months. For investors looking for capital appreciation, there is a cumulative option where the interest will be reinvested and will accumulate. The redemption value of a Rs. 1,000 bonds will be Rs. 1,703.
  • The redemption period for these bonds are 7 years. However, a premature exit is allowed for people of age above 60 years.
  • These bonds are not transferrable to another person. They cannot be used as collaterals for loans.
  • The interest earned on these bonds is taxable. It is taxed similar to interest on Fixed Deposits.

So, now that you know the Savings Bond meaning, you can take a decision to invest in them. These bonds can be subscribed at any time, which makes them an attractive mode of investment for some funds that are lying idle. Since the minimum threshold is low, it opens up the bond as in investment mode. Invest in the Savings Bond and earn from your funds today!

Looking to invest in a Savings Bond? Approach your nearest HDFC Bank Branch to know more!

Know more about the different factors to consider when making an investment now!

* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action.