7.16% interest rate GOI 2050 bonds on sale 13-14th Oct 2020

Published on / By M. Pattabiraman Twitter: @pattufreefincal

Published: October 13, 2020 at 9:46 am

Last Updated on October 13, 2020 at 9:46 am

Govt of India (GOI) has announced the sale (Re-issue) of 7.16% Government bonds maturing in 2050. Approximately Rs. 400 crores of these can be bid by retail investors via the NSEgoBid platform on 13th and 14th Oct 2020 (10 am to 5 pm). The auction will be conducted by the RBI on 16th Oct.

Details of the 7.16% GOI Bond:  716GS2050L – GS (7.16% GS 2050). Price per Security Rs. 115.00. Min Bid & Multiples Rs.  10,000.00 and Max Bid 2.00 Crores. This bond was issued 20-Apr-2020 and will mature on 20-Sep-2050. Interest will be paid twice a year in Oct and April.

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 of 7.16% (before tax). However since each bond is being sold at a premium of Rs. 15, the effective yield (approx) is (7.16%/115)  = 6.22%. Investors considering this bond versus an annuity must ask (among other questions) if this effective yield is a better deal. For example, if you are 40+, want a pension for life, LIC will be happy to pay you more than 6.22% (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 for 30 years (may or may not a person’s lifetime), will always return the principal and there is no need for a life certificate to provided each year. As with every choice, it is not about which is better, it is about which is better for us.

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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.

This is a 30-year bond. So it 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

Other securities available for bidding bet Oct 13th and 14th 2020:

  • 522GS2025G – GS  (5.22% GS 2025
  • 619GS2034H – GS (6.19% GS 2034)

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