One of the safest Debt Instruments — FRSB by GOI
Primary Section | Newsletter no: 6 | FRSB's features, returns, tax treatment, & suitability
Good day, everyone! It has been quite a while since my last post. I've been busy with work, and as we all know, we need to work as much as possible to earn more money, right? This way, we can stay invested in the market. I try to post at least two newsletters per month. I hope you all understand and support my journey.
Have you ever heard of FRSB?
FRSB stands for Floating Rate Savings Bond. It is a bond issued and backed by the Government of India (GOI). Often comes with a maturity of 7 years. It is a floating-rate bond, and the coupon rate is reset every 6 months. It offers returns of 35 bps above the Nation Savings Certificate (NSC)—as of June 2025, NSC offers a 7.7% annual return, while the FRSB offers 8.05% per annum, which is 0.35% above NSC returns.
Similar to other government securities, FRSBs are also taxable. If the annual returns exceed ten thousand rupees, a 10% Tax Deducted at Source (TDS) is applicable. Additionally, the interest income is taxed according to the investor’s applicable income tax slab. For example: If your annual interest income from FRSB is Rs 20,000 and you fall under the 20% tax slab, 20% of your interest income—which is Rs 4,000 in this case—will be taxed. The 20% tax will be applied in such a way that 10% TDS is deducted on the semi-annual interest payout, and the remaining 10% must be paid by you at the time of Income Tax Return (ITR) filing.
If the investor falls under the 0% tax slab rate, he needs to submit Form 15G or Form 15H according to his age. If TDS is deducted anyway, he can claim a refund by filing an ITR at the end of each financial year.
Let's see why it is regarded as one of the safest debt Instruments.
The primary advantage is that FRSB offers the safety of principal—protects your invested capital—unlike bonds and stocks, as both securities are tradable in the secondary market and subject to price fluctuations. FRSB is not tradable anywhere. Hence, your principal amount is 100% shielded. Even Fixed Deposits (FD) are not 100% safe as the deposit insurance covers up to 5 Lakhs INR only. The second reason is that FRSBs have zero credit risk as backed and guaranteed by the Government of India. Additionally, unlike other government fixed-rate bonds, it provides better protection against interest rate risks. How? Let me explain to you with an example.
Assume you invested 1 lakh rupees in a central government bond with a maturity of 20 years. Coupon Rate 6.50%, Face Value is 1000 Rs. Present Bond Market Price is 1005 Rs, Yield 6.46%. Now, if RBI hikes the Repo Rate, say 0.5%, the bank's borrowing cost increases, which in turn raises FD and loan interest rates. To attract investors towards government securities, the government increases the coupon rate for new bond issues, say 7.0%. However, since existing government bonds are fixed rates, they offer the same 6.5% coupon rate. In your case, you will get 6.5% returns per annum on your holdings while the new bond purchasers are enjoying 7.0% returns per annum. The effect is pronounced more during a prolonged rising interest rate environment. Additionally, since the new bonds offer better returns now, more investors will move towards new bonds—selling old issues and buying new issues. This action leads to negative price movements causing the unrealised loss in invested principal.
This is not the case in FRSB. Usually, during a rising Interest Rate environment, NSCs are expected to provide better returns than large commercial bank FDs. So, the government often raises the NSC return rate. Thus, it reflecs in FRSB as well. Since the FRSB coupon rate is reset every 6 months and is not tradable in the secondary market, they offer both the safety of the principal amount and the protection against the rising interest rate environment. These are the reasons why FRSB is regarded as one of the safest debt instruments.
Eligibility
Only Indian Residents & Hindu Undivided Families are eligible to invest in FRSB. They can buy it through RBI Retail Direct mobile app or website. As of now, Non-residents of India (NRI) are not allowed to invest in FRSBs. Hopefully, things will change for NRIs in future.
Okay, let's wrap up today's insights on FRSBs. I hope you all learned something new through ‘The Value Investor's Lab (TVIL) which is very useful in your investment journey.
So, what's your take? Will you consider investing in a Floating Rate Savings Bond (FRSB) from now on? Share your thoughts in the comments!. Stay tuned—I’ll be dropping another valuable piece shortly!
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