Every year, NRIs send substantial sums of money back to India. Many people are eager to take advantage of the Indian market’s investing potential. Apart from real estate, bonds and debentures are favored investment vehicles.
The Indian government announced in the Union Budget for 20202021, that NRIs will be eligible to invest in certain categories of government bonds without any restrictions. On April 1, 2020, this became law.
The Reserve Bank of India (RBI) established a special channel for non-resident Indians (NRIs) to invest in Government of India securities, or G-sec. “Fully Accessible Route (FAR)” is the name of this route.
Long-term securities are known as G-secs. Tenure lengths range from 5 to 40 years. Fixed or adjustable interest rates are available. Interest is calculated on the face value of the loan rather than the purchase price. The yields on these bonds range from 6.18 percent to 7.72 percent, depending on the tenure.
NRIs will be able to invest in all new government securities with 5-, 10-, and 30-year maturities beginning in the Financial Year 2021, according to the RBI. The FAR channel would be used to make this investment. NRIs, on the other hand, are unable to invest in Floating Rate Bonds 2020.
Can you repatriate these investments?
Yes, you certainly can. The investment must be made either from abroad through recognized and permitted banking channels or from monies accumulated in the NRE/FCNR (B) account.
If you invested on a non-repatriation basis, the money will be credited to your NRO account when it matures. If you invest on a repatriation basis, the maturity amount will be deposited into your NRE/FCNR (B)/NRO account.
How do you invest in these bonds?
You’ll need to contact your bank or brokerage, depending on whether you have an NRE/NRO account or a trading-cum-Demat account with them. On the scheduled days of the week, the bank/broker would bid for the appropriate bonds. For further information, you can contact the RBI’s Primary Dealers.
Is it possible for NRIs to invest in tax-free bonds?
NRIs are authorized to invest in NHAI and PFC tax-free bonds, which are available for subscription in the primary market. This will also apply to HUDCO and Railway Finance Corporation’s planned tax-free bonds.
Are NRIs eligible to apply for RBI bonds?
Non-Resident Indians are paying close attention to the Reserve Bank of India’s recently launched Retail Bond Scheme (NRIs). Individual investors can open a Gilt Securities Account “Retail Direct Gilt (RDG)” account in the primary market and buy/sell in the secondary market under this scheme. Non-resident retail investors who are eligible to invest in government securities under the Foreign Exchange Management Act of 1999 can create an account with the RBI and use the RDG Scheme to invest in government securities. Higher returns could be the key reason. “The yield on an Indian Government Bond, which ranges from 6.5 percent to 7%, is substantially greater than the yield on developed market sovereign debt with a similar risk profile.” According to Sonam Srivastava, founder of Wright Research, a SEBI-registered RIA, “this new scheme must be a desirable secure debt option for NRIs.”
According to Abhay Agarwal, founder and fund manager of Piper Serica, a SEBI-registered PMS, NRI investors in the nation have limited possibilities for debt investments. They are unable to open a new PPF account. They cannot invest in high-yielding modest savings programmes like the National Savings Scheme or Kisan Vikas Patra. Mutual fund houses impose restrictions on NRIs from the United States and Canada, and only a few allow them to invest. Furthermore, mutual funds’ expenditure ratio eats into their returns. NRIs can invest in bank and corporate deposits, although these are only available for 5-10 year terms. “Most of these options, such as debt funds and fixed deposits, have significant fees and taxes,” Agarwal explains. They must also follow stringent regulations when investing.
Can NRIs purchase bonds in India?
These government bonds can be purchased by NRIs using their NRO bank accounts. Given that interest rates in developed countries are in the range of 1-2 percent, investors are attracted to the 6.5-7 percent yield on Government of India bonds.
Is the Sovereign Gold Bond available to NRIs?
Experts have always recommended that people invest 5 to 15% of their overall assets in gold. The pace of increase in gold is very strong, which means that gold investment from outside India has a lot of potential.
Because of its amazing rate of growth, gold is an excellent investment for NRIs. Gold investing by non-resident Indians (NRIs) can be a lucrative alternative. The following are the gold investment alternatives open to NRIs:
Investment in Gold in Physical Form
In India, gold is always purchased and collected in the form of jewelry. Buying, presenting, and wearing gold jewelry at family events and celebrations is a tradition because of its aesthetic appeal. Although appealing, it has certain disadvantages, such as the possibility that many homes may not sell it when the price rises; another issue is that metal wastage and manufacturing and melting costs may not be favorable.
Purchasing bullion coins is advantageous since they are available in several values ranging from 2.5 grams to 50 grams, with an international assay certification of 24 carat purity. NRIs should purchase it from jewellers rather than banks because they can sell it back to the jeweller but not the bank.
Gold ETF
ETFs (exchange-traded funds) are mutual funds that invest in gold and extract value from it. NRIs must have a PINS account to invest in Gold ETFs on the Stock Exchange in India. They can purchase it from a fund house, but they must do it in multiples of 1000 units.
E-gold
This is a fantastic chance for NRIs wishing to make a little gold investment. This can be done in Demat form in lesser amounts as low as 1 gram of gold and its multiples. This gold investment system functions similarly to stock exchanges, with high liquidity, no purity issues, and low storage expenses.
Sovereign Gold Bonds
If consumers wish to acquire gold digitally, they have a convenient choice. The Indian government has launched this scheme with a 2.5 percent annual interest rate; however, NRIs are not permitted to participate in these gold bonds. They can, however, maintain these bonds until early redemption or maturity if they purchased them before obtaining NRI status.
Gold Funds
Gold funds are gold mining and producing firms that offer investment choices in the form of bars. Investing in gold funds is comparable to mutual fund investing.
Is it possible for NRIs to invest in mutual funds in India?
NRIs are allowed to invest in mutual funds in India, but they are subject to particular tax and foreign exchange rules. Several platforms, such as Kuvera, Clear, and Scripbox, allow NRIs to invest in India completely online from their home country. However, because of the extensive documentation required by FATCA, several mutual fund institutions refuse to accept mutual fund applications from the United States or Canada (Foreign Account Tax Compliance Act). L&T Mutual Fund, Nippon India Mutual Fund, PPFAS Mutual Fund, and UTI Mutual Fund are some of the AMCs that allow US/Canada residents to invest in India. Certain terms and limitations apply to the investments.
Can non-resident Indians purchase perpetual bonds?
Bonds. If the issuer allows it, NRIs can invest in a variety of bonds, including PSU bonds and perpetual bonds. NRIs received tax-free bonds from the government a few years ago.
Step 1: Set Up an Account
Asset Management for Mutual Funds Companies in India are unable to take foreign cash investments.
You cannot park your money in a typical resident savings account in India once you have gained NRI status, according to Indian legislation, notably the Foreign Exchange Management Act (Fema). This rule makes it mandatory for an NRI to understand the differences between NRE and NRO accounts and to know which one is best for them.
NRE: An NRE account is ideal for those who want to send money earned outside of India to India.
NRO: Money in NRO accounts must also be stored in Indian rupees, and money in NRO accounts cannot be easily repatriated to a foreign currency. NRIs can use NRO Accounts to deposit their profits in India. This is a significant distinction between an NRE and an NRO account.
A. Self or Direct
- Through standard banking methods, an NRI can conduct transactions, debiting or crediting his or her account.
- Their application, together with the appropriate KYC information, must specify whether the investment is repatriable or non-repatriable.
- A recent photograph, certified copies of PAN cards, passport copies, proof of living outside India, and a bank statement are all required KYC documents. An NRI might comply with the bank’s request for in-person verification by visiting the Indian Embassy in their home country.
B. Through the Power of Attorney (PoA)
Mutual fund providers in India allow shareholders to invest on their behalf and make other investment decisions. To make such investments, however, both the NRI investor and the PoA’s signatures must be present on the KYC documentation.
Step 2: Get Your KYC done
Before investing in Indian mutual funds, an NRI must complete the KYC process.
They’ll require a copy of your passport (just the appropriate pages containing your name), your date of birth, a photo, and your address to do so. Whether you are a temporary or permanent resident in that nation, you must provide documentation of your current residence. Some fund companies may additionally require in-person verification.
Because of the onerous compliance requirements imposed by the Foreign Account Tax Compliance Act, several mutual fund institutions in India do not allow NRIs from the United States and Canada to invest in their schemes (FATCA). On the other hand, certain fund firms have specific criteria for allowing investors from the United States and Canada to invest in their schemes.
If you are an NRI from the United States or Canada, you should additionally check at the additional document requirements.
ICICI Prudential AMC, Birla Sun Life Mutual Fund, and SBI Mutual Fund, for example, only enable investments through an offline transaction with a client declaration.
NRIs from the United States and Canada can invest in the following fund houses:
Step 3: How to Redeem?
Mutual fund investments held by NRIs can be redeemed by following the fund houses’ redemption procedures. In India, different investment firms have distinct methods for NRI redemption.
Following deducting taxes, the AMC will credit the corpus (investment + gains) you receive after fund redemption to your account, which will be credited to the investor’s corresponding NRE or NRO bank account. They can also write a check to pay for it.
Which bonds are available to NRIs?
From FY 20-21, NRIs would be able to invest in 5-, 10-, and 30-year bonds. RBI has the authority to establish new guidelines at any moment. NRIs can consider investing in the following categories of bonds:
Public Sector Units and Capital Bonds
The investors do not receive any tax benefits from these bonds, 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. There is a three-year lock-in term on these bonds.
Non-Convertible Debentures (NCDs)
NCDs are a type of corporate bond that can be redeemed and traded. They are debt securities that can be used as a long-term investment. The maturity time varies between one and twenty years.
Debt Mutual Funds
Fixed interest can be earned through debt mutual funds. 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.
Bharat Bond ETF & FOF
Securities from India NRIs are more interested in the Bharat bond ETF and FOF since they are safe, low-cost, and give superior returns. The Bharat Bond ETF blends maturity with the advantages of an exchange-traded fund.