What are the benefits and drawbacks of RBI saving bondsThe 7.75 Government Savings Bond will open for subscription from January 10.The 7.75 per cent government savings bond which will have a maturity of sevenyears replaces the 8 Savings Bonds Scheme also known as RBI Bonds Scheme.The 8 Savings Bonds Scheme was popular among those who looked to have aguaranteed regular income.the government Savings Bond will fetch lower interest rate now it is still agood bet for investors looking at guaranteed regular income from theirinvestments.10 Things To Know About 7.75 Government Savings Bonds1 There is no maximum limit for investment in 7.75 Savings Taxable Bonds.2 The bonds will be issued for a minimum amount of Rs.1000 face value andin multiples thereof.3 The 7.75 Government Savings Bonds are open to investment by individualsincluding Joint Holdings and Hindu Undivided Families. NRIs are not eligiblefor making investments in these bonds.4 Investors can choose between the cumulative and noncumulative modes forpayment of interest. 5 In the cumulative option interest is paid on maturity of bonds. In thenoncumulative mode interest is paid on a halfyearly basis.6 Like bank fixed deposits the interest income earned from 7.75 GovernmentSavings Bonds is added to ones income and taxed according to the respectiveslabs.7 The bonds will be exempt from wealth tax under the Wealth Tax Act 1957.8 The 7.75 Government Savings Bonds will have a maturity of 7 years carryinginterest at 7.75 per annum payable halfyearly. The cumulative value of Rs.1000 at the end of seven years will be Rs. 1703.9 The bonds are not transferable.10 The 7.75 Government Savings Bonds are also not tradeable in the secondarymarket and are not eligible as collateral for loans from banking institutionsnonbanking financial companies or financial institutions.Generally the factors that decide upon any form of investment isa. safety of the funds investedb. regular income to offset the impact of inflationc. liquidity ease of converting the investment into liquid cash 1. The safety factor of the bonds is apparently high since it is issued by the govt u2023 but if the govt decides to hold back the funds and only renews the bonds for further 7 years then the investor might not get see the cash invested the funds are not subject to wealth tax provisions 2. The interest income is guaranteed but the interest income is not free from income taxes 3. the liquidity aspect is low due to the absence of a secondary market for trading these bondsI would like to add one more factor the enduse of the funds so raised Thereis no proper explanation for the issue of bonds My fears are that like theu201cexcess amounts collected for fuelsu201d the allocation of which is notreflectedaccounted for in the budgetsthese amounts also will be squanderedaway on unproductive but populistic schemes like loan waivers orrecapitalisation etc thus the funds mopped up would not be generatingadditional employment or improves the economy in any manner some might arguethat funds might uplift the banks u2023 please note that recapitalisation onlybrings down the percentage of NPAs down but it will not bring down thequantum of outstandings Loan waiver scheme also is lop sidedu2026.we are not surewho the beneficiaries are going to be and this might lead to furtherdeteriorate the living conditions of the poor peopleThe irony is that the major investors in these bonds are going to be the largefinancial institutions like LIC Banks etc while LIC is floating over thetroubled waters the banks are already stuttering due to funds shortagethe issue of the bonds itself is well planned to wean away the surplus moneyfrom the hands of the people and I also sense some smart scheming on the partof the govt earlier to these bonds the govtrbi have issued 8 savings bonds 6 years maturity for this purpose they reduced the interest rates on otherinvestment avenues such as Bank Deposits PFs of all flavours and so on soas to divert the funds to the bonds issue this is an unfair act on the partof the govt the poor manu2019s income is eroded unjustlyThere were instances when the govt failed to honour the bonds and issued NSCsin the past while redeeming the bonds