Types of NRI Bonds One Can Consider For Investment: Money Matters

What Is An NRI Bond?

An NRI bond is a type of fixed-income instrument issued by the Indian government or other authorised financial institutions, specifically designed for NRIs, Overseas Citizens of India (OCIs), and Persons of Indian Origin (PIOs). These bonds allow NRIs to invest in India while benefiting from attractive interest rates, tax exemptions, and security on their investments.

Policy Bazaar states that “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.”

NRI bonds are popular because they offer relatively stable returns, and protection against currency fluctuations, and are backed by the Indian government. The capital raised through these bonds is typically used for infrastructure development and other public sector projects.

Types of NRI Bonds

There are several types of NRI bonds, each with unique features and benefits tailored to different investment needs. The following are the most common categories:

1. Government Bonds

Government bonds issued to NRIs provide a secure and reliable investment option. NRI Government Bonds are debt instruments offered by the Indian government, designed exclusively for Non-Resident Indians (NRIs) to invest in. These bonds allow NRIs to invest in tax-free securities, with the option to do so on either a repatriable or non-repatriable basis, depending on the origin of the invested funds, as per Vance - Neobank for NRIs report. These bonds are usually long-term, offering attractive interest rates and safety due to government backing.

2. RBI Bonds

The Reserve Bank of India (RBI) also offers bonds for NRIs. These bonds are known for being highly secure, given the credibility of the central bank. One prominent example is the RBI Floating Rate Savings Bonds. These bonds have interest rates that adjust based on prevailing market conditions, offering flexibility to investors.

3. Corporate Bonds

Corporate bonds allow NRIs (Things NRIs Should Keep In Mind Before Investing In India) to invest in bonds issued by companies in India. These bonds typically offer higher returns than government bonds, but they carry a greater degree of risk. The return on corporate bonds depends on the financial performance of the company issuing them. Some corporate bonds are rated, and NRIs are advised to invest in those with higher ratings for security.

4. Corporate Bonds

“A corporate bond is debt issued by a company in order for it to raise capital. An investor who buys a corporate bond is effectively lending money to the company in return for a series of interest payments, but these bonds may also actively trade on the secondary market”, as per an Investopedia report. While they may offer higher interest rates than government bonds, they come with greater risks. It's important to assess the company's financial stability before investing.

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5. Non-Convertible Debentures (NCDs)

Non-Convertible Debentures are fixed-income instruments issued by companies. These are not convertible into equity shares and provide a fixed interest income. NCDs can be attractive for NRIs because they typically offer higher interest rates. “NCDs have a fixed maturity date and the interest can be paid along with the principal amount either monthly, quarterly, or annually depending on the fixed tenure specified”, according to ClearTax. However, investors should assess the credit rating of the issuing company to evaluate the risk involved.

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Why Should NRIs Consider Investing In Bonds?

NRI bonds offer several benefits, making them a good investment choice for many NRIs:

i) Bonds provide a predictable income stream through regular interest payments.

ii) Bonds issued by the Indian government or RBI come with the highest level of security.

iii) Some bonds offer tax exemptions under certain conditions, making them more attractive for NRIs.

Note: Before taking any money/finance-related decision make sure to consult a financial advisor.

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