Non-resident Indians working abroad transfer large sums of money to their home country every year. In 2018, NRIs sent $79 billion to India. NRI investments boost economic development and deepen the financial markets.
There are several investment options for NRIs in India. But among products offering safety and returns, the non-resident deposit account is the preferred choice. The interest earned on NRE accounts is tax-exempt and the principal and interest are fully repatriable to the foreign country.
Currently, non-resident rupee deposits attract anywhere between 5.50% to 7.50% interest rates depending on the bank. But NRIs may want to diversify their investments beyond bank deposits and explore the opportunities in the financial market.
Some of these opportunities lie in the realm of bonds and debentures. Many corporate bonds have been trading at high yield compared to the interest earned on NRE deposits. Although NRIs cannot invest in the public issue of many attractive bonds, some opportunities do come from time to time.An NRI is allowed to purchase a maximum of 5% of paid up value of each series of debentures.
NRIs have also been given favorable low taxes on interest payments earned from Infrastructure Debt Funds (IDFs). Latest issuances of IDFs are soon to hit markets, either through the mutual fund route or through issuance by authorised non-banking financial companies.
The Reserve Bank of India has also widened the investment opportunities for NRIs by allowing full access to investments in specified central government securities (G-Secs).The yield on these G-secs is between 6.18% and 7.72%, for different tenures.
These opportunities can help NRIs in long term financial planning, and also in short-term diversification to earn high returns. But how can NRIs invest in bonds?
Let us first be clear who is called an NRI or in legal terms, a ‘Non-Resident’.
A non-resident is a person who stayed in India for less than 182 days during the current year. In case stay is more than 60 days (but less than 182 days) in the current year and more than 365 days in the preceding four years, then the person should satisfy either or none of these conditions: 1. Resident of India for 2 out of past 10 previous years, and 2. Stay in India for 730 days in preceding 7 years.
However, those who leave India for pursuing employment abroad are non-resident if stay in India was less than 182 days in the current year.
Once the tax residential status is determined, you will need to open a non-resident rupee account (NRE), a portfolio investment scheme account (PIS) and a demat account. Some banks offer all of these accounts under the same roof.
Once the formalities are cleared and the account set-up, you can go ahead and invest in a various asset classes like equities, bonds, ETFs etc using this account. This method is better than the mutual fund route because you have complete control over the investments.
Leave a comment