Why RBI floating rate bond with 8.05% interest is still one of the best investment options for most investors?

Core Insights - The RBI floating rate bond offers a higher interest rate than many fixed deposits (FDs) and allows unlimited investment, making it an attractive option for investors [1][13] - The bond's interest rate is linked to the National Savings Certificate (NSC) rate plus a fixed spread of 0.35%, with a current rate of 8.05% per annum [7][13] - Unlike fixed deposits, the interest rate on RBI bonds adjusts with market rates, providing better protection against interest rate fluctuations [6][10] Investment Comparison - Current FD rates from large banks range from 6% to 7%, which are fixed at the time of investment, while RBI bonds offer a floating rate that adjusts over time [2][13] - Among small savings schemes, the highest interest rate is 8.2% in the Senior Citizen Savings Scheme (SCSS) and Sukanya Samriddhi Account (SSY), but both have investment limits, unlike the RBI bond [8][14] Safety and Risk - The RBI bond is issued by the Reserve Bank of India on behalf of the government, carrying no default risk, making it safer than corporate bonds or bank FDs [5][13] - The floating mechanism of the bond protects against erosion of returns in a rising rate environment, making it suitable for conservative investors [6][11] Investment Strategy - Investors are advised to consider RBI floating rate bonds for low-risk portions of their portfolios, particularly for long-term goals or retirement income planning [10][14] - The bonds provide semi-annual payouts, creating a consistent income stream, which is beneficial for retirees seeking periodic income [11][14] - It is suggested that conservative investors incorporate RBI bonds as a core holding in their debt allocation for stability, potentially pairing them with equities for growth [12][14]