The Promise of Bonds for NRIs
04 Nov 2020

The Promise of Bonds for NRIs

Open an NRI Savings Account

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Key Takeaways: In April, the Reserve Bank of India introduced the Fully Accessible Route (FAR) through which NRIs can now invest in specified bonds issued by the Government of India.

Non-Resident Indians around the world are constantly on the lookout for good investment options in India. While most of them invest in mutual funds, direct equity and real estate, many of them are keen to invest in the debt markets as well, particularly government bonds. And the good news is that they can now invest without restrictions or ceilings in specified securities issued by the Indian government. But before that, let's know more about NRI Bonds.

NRI Bonds were an option earlier specifically for NRIs. These were securities issued by the Indian government to raise foreign exchange from Indians abroad by offering reasonable returns with a sovereign guarantee. However, the last NRI Bond issue was in 2013.

Even though there have been no issues of NRI Bonds for a while now, you can still invest in government bonds through the Fully Accessible Route.

How NRIs can invest in Indian bonds

The Government of India issues tradable securities that carry an interest or coupon rate. These securities (treasury bills and bonds) have varying maturities from 90 days to many years. G-Secs, short for government securities, are considered safe investments because the government guarantees the interest and principal amount.

Till April 2020, government-issued bonds were not fully opened for NRIs. This changed after the RBI created a separate channel known as the 'Fully Accessible Route' (FAR) through which NRIs can invest in specified government securities without any ceiling or restrictions1.

Open an NRI Savings Account

In which securities can NRIs invest?

NRIs can invest in all 5-year, 10-year and 30-year bonds issued by the GoI from FY20-21. The RBI will designate new tenures and issues from time to time for NRIs to invest.

NRI Bonds: Capital Gains

NRIs can invest in capital gains bonds issued by REC and NHAI under Section 54EC to claim deductions on capital gains. These bonds have a three-year lock-in.

Another type of bonds NRIs can invest in are infrastructure bonds.

NRIs and Bharat Bonds

If you are an NRI looking to invest in Indian securities that are relatively safe and yet offer attractive interest rates, then issues like the Bharat Bond FOF and Bharat Bond ETF are a good option. The underlying papers in Bharat Bond ETF & FOF are debt papers of CPSE (Central Public Sector Enterprise) and PSE (Public Sector Enterprise) companies.

Why NRIs should invest in bonds?

  • Low risk
    While bonds do carry credit and interest rate risk, G-Secs generally have lower credit or default risk.
  • Repatriable
    Repatriation is often a cause of concern for most NRIs. Most NRIs prefer to invest in schemes in which their earnings can be repatriated. In the case of bonds, the returns are freely repatriable.

Debt mutual funds

NRIs may also invest in Indian Bonds through debt mutual funds. This alternate route is much more hassle-free and enables you to monitor your debt portfolio frequently. In case of NRI investments in debt mutual funds, the investment amount can be debited directly from your NRE or NRO account. When you exit the fund or redeem your investment, the amount is again credited back to the source account. NRIs can invest in mutual funds after submitting their FATCA declaration (Foreign Account Tax Compliance Act).  Please check with the fund house if they allow investments by NRIs before deciding on the investment options.

Final Note: NRIs now have many options to invest in Indian bonds. The Fully Accessible Route allows them to put their money in government securities, which come with greater credit quality and reasonable returns.

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References: 1

Disclaimer: This article is published purely from an information perspective and it should not be deduced that the offering is available from DBS Bank India Limited or in partnership with any of its channel partners. The purpose of the Live eNRIched blog is not to provide advice but to provide information. Sound professional advice should be taken before making any investment decisions. The bank will not be responsible for any tax loss/other loss suffered by a person acting on the above.

Open an NRI Savings Account