NRI Bonds

One issue that often comes up when someone obtains a status of NRI is how and where he can invest his surplus money in India. While considering different options, NRIs have to check how much tax they have to pay and tax-free options.

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Disclaimer: #The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CAGR 8%; ₹50,45,591 @ CAGR 4%. *Tax benefits and savings are subject to changes in tax laws. All plans listed here are of insurance companies’ funds.

The Investment Options

There are various investment options available for NRIs, like mutual funds, real estate, direct equities, etc. However, many NRIs are interested in government bonds.

NRIs make investments in India for different purposes; some want to create a financial backup for families. Some want to have good returns, and some want to diversify their global portfolio of investment. Whatever the case be, investment in NRI bonds is always the right choice for NRIs.

What are NRI Bonds?

With the declaration of the government securities opened to NRIs, RBI introduced a separate route, 'Fully Accessible Route'. This is for the NRIs to invest in government securities in the form of bonds for NRIs.

With effect from 1^st April 2020, NRIs are eligible to invest in government bonds for NRI in India without any ceiling limit in certain specific instruments. The rules and regulations for investment in bonds by NRIs and OCIs are the same.

What are the Types of Bonds?

NRIs have options to invest in 5 years, 10 years, and 30-year bonds from FY 20-21. It is the right of RBI to issue new guidelines from time to time. The following are the types of bonds that NRIs can consider investing:

Public Sector Units and Capital Bonds

Under these bonds, the investors don't get any tax exemption, but the interest accrued will be tax-free under section 10 (15) (IV) (h). NRIs can claim deductions by investing in Capital Gain Bonds issued by REC and NHAI under Section 54 EC. These bonds have a 3 year lock-in period.
Non-Convertible Debentures (NCDs)

NCD is a redeemable corporate bond and tradable instrument. They are debt securities and a long-term investment option. The maturity period ranges from 1 to 20 years.
Debt Mutual Funds

Through debt mutual funds, one can earn fixed interest. NRIs are allowed to invest in mutual funds after they have submitted their FATCA declaration. The investment will be made after deducting money from NRE or NRO account.
Bharat Bond ETF & FOF

Indian securities Bharat bond ETF & FOF are safe options, low cost, and offer better returns, so NRIs are more interested in this product. Bharat Bond ETF combines maturity with the benefits of an ETF.

Benefits for NRIs in Investing Securities

The government securities have interest rates or coupon rates either in fixed form or floating. These are the advantages of Government securities to avail high returns:

Diverse Portfolio

The investment in government securities makes NRI's portfolio more diverse, which reduces the overall risk factor in the portfolio.
Meeting Cash Requirements

At the time of sudden cash needs, government securities can be sold at the secondary market. In the same way, it can be used as collateral to borrow funds in the market.
Tenure

For NRIs, investing in government securities is very convenient in terms of tenure periods as it ranges from as low as 91 days (3 months) to 41 years.
Risk-free

With a careful and secure transaction, the government securities are safe and risk-free, which is a prominent benefit.
Repatriable

Usually, NRIs prefer to invest in those schemes where they could repatriate their earnings. Investing in bonds is an excellent choice to repatriate all returns.

RBI Bonds for NRIs

Reserve Bank of India has enabled NRIs to invest in Government of India bonds-G-sec. They are long-term securities. The tenure range for such bonds is from 5 to 40 years. Based on the tenure, these bonds provide yields between 6.18% and 7.72%.

There is a fixed return, ‘coupon rate’ or ‘interest rate’ obtained from the trading of the bonds. The interest rate may be fixed or floating. NRIs are not allowed to invest in Floating Rate Bonds 2020.

Conditions for Buying with Repatriation or Non-repatriation

Take a low below at the following key conditions:

NRIs/OCBs will be permitted to invest in shares/debentures if the purchase is made through Stock Exchange and a designated branch authorized by the Reserve Bank.
The general permission to invest on a non-repatriation basis by RBI would be valid for five years. Post this; authorized dealers themselves renew the permission for five years.
The investment made in equity or preference shares and convertible debentures of any listed Indian company by NRI/OCBs should not exceed 5% of its total paid-up equity or preference capital. It should also not exceed 5% of the total paid-up value of each convertible debentures series issued by it. NRIs/OCBs take or give delivery of the shares or convertible debentures purchased and sold under this scheme.

Tax on Capital gains on investment by NRIs

It is also necessary to consider the NRI capital gains tax on shares. Since NRIs are allowed to invest in government securities, debentures, listed non-convertible debentures, the tax rate depends upon the type of investment and the period for which they are held.

Tax on Long Term Capital Gain on Sale of Equity Shares

The equity shares or equity-oriented mutual funds are held for more than 12 months. When the sale of these instruments happens, they shall be taxable at the rate of 10% if the gain on sale is more than Rs 1 lakh. However, if the gain on sale is less than Rs 1 lakh, the gain is exempt from tax if Securities Transaction Tax (STT) is paid to acquire and sell equity shares. STT is required to be paid on the sale of units of equity-oriented mutual funds.
Tax on Short term Capital Gain on sale of Equity Shares

The short-term capital gain happens when equity shares and equity-oriented mutual funds are sold before 12 months. The short-term capital gain is taxable at 15% if STT is paid.

NRIs can also invest in various tax-free bonds in India for NRI to avoid taxes.

Wrapping it Up

India is a developing country, and its fast-growing economy provides immense opportunities for investment for its citizens. People who hold NRI status are also eligible to invest in different schemes launched by the government, which are beneficial and hassle-free. Indian Debt Market, one of the largest in Asia, promises assured returns. While considering other options, investing in NRI Bonds is one of the best choices for NRIs.

All procedures for investments for NRIs have been very convenient and smoothly run. Furthermore, keeping the current pandemic situation in view, all processes and procedures have been performed in the online mode, which proved to be easy and convenient for NRI investors to do transactions with updated information.

†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in

Past 10 Years' annualised returns as on 01-12-2024

^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.

Tax benefit is subject to changes in tax laws. Standard T&C Apply
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

#The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CARG 8%; ₹50,45,591 @ CAGR 4%

¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.

**Returns are based on past 10 years’ fund performance data (Fund Data Source: Value Research).