Understanding RBI Floating Rate Bonds: Impact of NSC Interest Rate Hike on Returns

In recent years, RBI Floating Rate Bonds have been an increasingly popular choice for many investors. These bonds are generally considered to be a risk-free investment, offering steady returns over a period of time.

The Reserve Bank of India (RBI) offers Floating Rate Bonds (FRB), which is linked to the benchmark rate of the National Saving Certificate (NSC).

Let's see how the current increase in NSC interest rates will affect RBI Floating Rate Bond interest rates favourably.

As of today, the interest rate for RBI FRB is 7.35%, and the same is linked to the benchmark NSC rate, which was offering 7%. This means that the interest rate for RBI FRB will change as and when the NSC rate changes. The interest rate reset date for the RBI FRB is 1st January and 1st July of every year. This means that on these dates, the interest rate for the RBI FRB will be revised based on the current benchmark NSC rate.

Effective from 1st April 2023, the interest rate of NSC has been increased to 7.70%. This means that the interest rate for RBI FRB will also increase to reflect this change. It is important to note that the interest rate for RBI FRB will only change on the interest rate reset date, which is 1st January and 1st July of every year.

Investing in RBI FRB can be a good option for those who are looking for a risk-free investment that offers steady returns. The interest rate for RBI FRB is linked to the benchmark NSC rate, which means that investors can benefit from any increase in the NSC rate. The interest rate for RBI FRB is also revised twice a year, which means that investors can benefit from any changes in the NSC rate relatively quickly.

In conclusion, the recent interest rate hike on NSC will have a positive impact on the interest rate for RBI FRB. Investors who have invested in RBI FRB can expect to receive a higher return on their investment effective from the next interest rate reset date, which is 1st July 2023. However, investors should note that the interest rate for RBI FRB is subject to market fluctuations and can go up or down based on the benchmark NSC rate. It is always recommended to consult with a financial advisor before making any investment decisions.