Last Updated on November 17, 2020 at 10:13 am
Govt of India (GOI) has announced the sale (Re-issue) of Rs. 9000 crore worth of 6.22% Government Bonds maturing in 2035 and Rs. 5000 crore worth of 6.67% Government Bonds maturing in 2050. Retail investors can participate in this sale via the NSEGoBid platform. Here are the details.
Bidding dates: 17th and 18th 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 20th Nov. (1) 30Y 6.67% bond: 667GS2050 – GS (6.67% GS 2050). The maturity date is 17th Dec 2050. (2) 622GS2035 – GS (6.22% GS 2035) with a maturity date of 16th March 2035. The bidding price for both bonds is Rs. 106. Readers who had bid on previous occasions had mentioned that the actual allotment price was lower (not always possible).
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 bond is being sold at a premium of Rs. 6, the effective yield (approx) for the 30Y bond is (6.67/106) = 6.29%. and the 15Y bond is 6.22/106 = 5.86%.
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.
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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 until the year indicated (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 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
Other bonds up for auction (same dates and restrictions)
- 448GS2023 – GS (4.48% GS 2023)
- NWGF2033J – GF (GOI FRB 2033) Floating Rate bond.
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