40Y GOI Bonds with 6.8% interest rate on sale 24th and 25th Nov 2020

Published: November 24, 2020 at 5:30 pm

Govt of India (GOI) has announced the sale (Re-issue) of Rs. 7000 crore worth of 6.8% Government Bonds maturing in 2060 via price-based auction. Retail investors can participate in this sale via the NSEGoBid platform. Here are the details.

Bond name: 680GS2060E – GS (6.80% GS 2060). Bidding dates: 24th and 25th Nov 2020. Time: 10 am to 5 pm. Amount: Multiple of Rs. 10,000 up to a max of two crores per bond. The auction date is 27th Nov. The bidding price is Rs. 110.  Readers who had bid on previous occasions had mentioned that the actual allotment price was lower (not always possible).

Other bonds that go under the hammer are:

  • 515GS2025 – GS (5.15% GS 2025) via price-based auction
  • 396GS2020 – GS (3.96% GS 2022) via price-based auction
  • NWGS2030B – GS (New GS 2030) via yield-based auction

New govt bonds are subject to yield discovery in the auction rather than price. Consult this article to appreciate the difference between Yield-based auction vs price-based auction.

What investors should consider before buying: These are GOI bonds and not “RBI bonds”.  Cumulative payout is not possible. You will get an interest rate indicated (before tax). However, since each 40Y bond is being bid at a premium of Rs. 10, the effective yield (approx) for the 40Y bond is (6.8/110)  = 6.18%.


Investors considering this bond versus an annuity must ask (among other questions) if these effective yields are a better deal for them. For example, if you are 40+, want a pension for life, LIC will pay you more (higher, the age, higher the rate) but will keep the principal.

If you want the principal returned to the nominee on death LIC Jeevan Akshay-VII will offer a lower rate (age-dependent) of 5.3% to 5.6%. Interest from both GOI bonds and insurance products are taxable as per slab. These bonds will pay interest of 6.8% on the face of Rs. 100 per bond until the year indicated (may or may not a person’s lifetime), will always return the principal of Rs. 100 per bond and there is no need for a life certificate to provide each year. As with every choice, it is not about which is better, it is about which is better for each individual. 

What investors should know before buying: NSEgoBid is a buying-only platform. You can attempt to sell these only via a depository participant who is also an NSE trading member. Therefore please find out more about this form your Demat provider before buying. Kindly consult a SEBI registered fee-only advisor if you need advice.

Such long-term bonds should only be used if you want regular income over that period. Make sure you have a nominee for the demat account and suitable will. In general, it is better to assume that once purchased it would be hard to sell these bonds as retail participation would be less. So do not buy unless you intend to hold until death and transmission thereafter.

We had discussed more who should use these bonds before: Can I get a pension using GOI bonds instead of LIC pension? If you want regular monthly income with not much of funds invested elsewhere then these bond are unsuitable for you.

Caveats: (1) you may bid but not get allotment; (2) future auctions may be (or may not be) for bonds that provide higher/lower interest rate: see list of outstanding GOI bonds

 

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