RBI's New Move Makes State Bonds More Flexible and Safer for Your Investments

The Reserve Bank of India (RBI) has introduced a new way to invest in state government bonds. These are called STRIPS, which stands for Separate Trading of Registered Interest and Principal of Securities. That may sound technical, but it’s good news for everyday investors like you.

What are STRIPS in simple terms?

Imagine you lend money to someone, and they promise to pay you small amounts of interest every year, and then return your full money at the end. Usually, all this is tied up in one agreement.

Now, STRIPS allows you to separate that agreement — the interest part and the final repayment part can be turned into two different investments. This gives investors more choice and flexibility.

Why should you care?

These are safe investments backed by state governments. And now, you can invest in just the part you want — maybe you want a lump sum in five years, or maybe you want a steady income from interest. STRIPS lets you choose what suits your needs.

It’s especially helpful for things like:

 Saving for your child’s education

 Planning for retirement

 Creating a fixed income stream in later years

These are low-risk options, much safer than stock markets, and can offer better returns than regular savings accounts.

What’s the catch?

There’s one limitation. RBI has said only bonds with less than 14 years left can be converted into STRIPS. This means long-term investors like insurance companies may not find them ideal.

But for individuals and families looking at short to medium-term savings, this move opens up new and useful options. Top insurers in the country agree that the Indian Central Bank’s attempt to encourage a separate trading of principal and interest for state government debt may be dampened by the duration rule. Since insurance companies prefer longer-duration papers, Indian insurers are hopeful that this factor might eventually lead the RBI to remove the duration cap in state-debt STRIPS.

How can you invest?

If you want to buy these kinds of government bonds, you can now do it directly using RBI’s Retail Direct platform. It’s simple, online, and doesn’t require you to go through a bank or agent.

In short:

RBI’s decision to allow STRIPS on state bonds gives you more control, more flexibility, and safer ways to grow your money. It’s another step towards helping regular Indians save smarter.

(The writer is a seasoned Banker and Mortgage Specialist working for India’s largest loan distributor company and occasional political commentator.)

IDN
IDN  
Next Story