India is a developing country with a rapidly growing economy that offers numerous opportunities for investment to its citizens. People with NRI status are also eligible to invest in various government-launched schemes that are both beneficial and hassle-free. The Indian debt market, which is one of the largest in Asia, promises consistent returns. Investing in NRI Bonds is one of the best options for NRIs when other options are considered.
With the declaration of government securities open to NRIs, the RBI established a separate route known as the ‘Fully Accessible Route.’ This allows NRIs to invest in government securities in the form of bonds. With effect from April 1, 2020, NRIs were able to invest in government bonds in India without any ceiling limit in certain specific instruments. The rules and regulations for NRIs and OCIs investing in bonds are the same.
The Reserve Bank of India has allowed non-resident Indians (NRIs) to invest in Government of India bonds (G-sec). They are long-term investments. Such bonds have maturities ranging from 5 to 40 years. These bonds have yields ranging from 6.18 percent to 7.72 percent depending on the tenure. The trading of bonds results in a fixed return, known as a “coupon rate” or “interest rate.” The interest rate can be fixed or variable. NRIs are not permitted to invest in 2020 Floating Rate Bonds. Government securities have either fixed or floating interest rates or coupon rates.
Benefits for NRIs investing in Bonds:
The following are the benefits of NRI investing in government securities:
The investment in government securities diversifies the NRI’s portfolio, lowering the overall risk factor in the portfolio.
Government securities can be sold on the secondary market in times of need. It can also be used as collateral to borrow funds in the market.
Investing in government securities is very convenient for NRIs because the tenure periods range from 91 days (3 months) to 41 years.
Government securities are safe and risk-free with a careful and secure transaction, which is a significant benefit.
Typically, NRIs prefer to invest in schemes that allow them to repatriate their earnings. Bond investing is an excellent way to repatriate all profits.
Types of Government Bonds:
NRIs can consider investing in the following types of bonds:
Capital Bonds and Public Sector Units:
The investors in these bonds do not receive any tax breaks, but the interest earned is tax-free under section 10 (15) (IV) (h). Under Section 54 EC, NRIs can claim deductions by investing in Capital Gain Bonds issued by REC and NHAI. The lock-in period for these bonds is three years.
Non Convertible Debentures (NCDs):
NCD is a tradable and redeemable corporate bond. They are debt securities that can be held for a long period of time. The maturation period ranges from one to twenty years.
Fixed interest can be earned through debt mutual funds in India. After submitting their FATCA declaration, NRIs are permitted to invest in mutual funds. After deducting funds from an NRE or NRO account, the investment will be made.
NRIs are more interested in the Bharat bond ETF and FOF because they are safe, low-cost, and offer higher returns. The maturity of the Bharat Bond ETF is combined with the benefits of an ETF.
Conditions for NRIs to invest in India:
- NRIs will be able to invest in shares/debentures only through the Stock Exchange and a Reserve Bank-authorized branch.
- The RBI’s general permission to invest in non-repatriable funds would be valid for 5 years. Following this, authorized dealers renew the permission for another five years.
- NRIs should not invest more than 5% of their total paid-up equity or preference capital in any listed Indian company’s equity or preference shares and convertible debentures. It should also not be more than 5% of the total paid-up value of each convertible debenture series it issues. NRIs can take or give delivery of the purchased shares or convertible debentures under this scheme.
Be it Government Bonds or equities, before investing in the Indian market, NRIs must be aware of certain things. One such thing is the need for Demat account. We at Tradeplus offer to open a Demat account in a complete paperless format in less than 5 minutes. To get started with the Demat account click here.