What Are NRI Bonds? Features & Benefits

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NRI investors often look for stable, regulated fixed-income options in India. One category suited for this need is NRI bonds, which allow NRIs to participate in India’s debt market. These instruments support capital preservation, may offer predictable income and can give NRIs access to various maturities to match their financial goals.

If you are an NRI who is unsure of what NRI bonds are, keep reading. In this article, we explain the meaning and features of NRI bonds, along with the key benefits of investing in them. 

What Are NRI Bonds?

An NRI bond is a fixed-income instrument that Non-Resident Indians can invest in. Since April 1, 2020, NRIs have been allowed to invest in Government Securities through the RBI’s Fully Accessible Route (FAR), which provides direct access to selected G-Secs in the form of NRI-eligible bonds.

These options primarily include government bonds, PSU bonds, and capital bonds which are known for their higher capital safety due to government backing. Apart from government bonds, NRIs can also invest in other approved fixed-income products such as secured corporate bonds and Non-Convertible Debentures (NCDs).

NRIs can invest through the RBI Retail Direct platform or authorised channels and receive fixed interest payouts, giving them a regulated way to participate in India’s debt market.

Key Features of NRI Bonds

Let’s understand the main features of NRI bonds in detail: 

• Investment Safety 

NRI bond investment options like government and PSU bonds typically offer the highest capital safety since they are backed by the sovereign guarantee. Secured corporate bonds, especially ones with a high credit rating (like AAA) are also relatively safe. 

• Stable Interest Payments

Most NRI bond interest rates are fixed, meaning steady interest payments throughout the investment tenure. Based on the current NRI bond eligibility criteria, they are not allowed to invest in floating rate bonds. This means fixed interest payments on a given schedule.

For instance, if you are an NRI investing in the 7.10% GS bond, you will receive an annual interest of 7.10% on your investment. 

• Multiple NRI Bond Investment Options

Investors who are interested in India’s debt markets can choose from different types of NRI bonds:

• Government Bonds for NRIs: Includes G-Secs, SDLs and T-bills available through the Fully Accessible Route and RBI Retail Direct. These carry sovereign backing and offer high capital safety.
• PSU Bonds: Issued by Public Sector Undertakings like NHAI and HUDCO to raise capital for projects. These bonds come with fixed coupon rates and can fall into taxable and tax-free (interest) categories.
• Capital Gains Bonds (54EC Bonds): NRIs can invest in 54EC Bonds when they have long-term capital gains from selling property in India. These bonds require investment within six months of the sale and come with a mandatory three-year lock-in period.
• Corporate Bonds and NCDs: NRI bond investment options also include corporate bonds issued by private and public companies. Secured corporate bonds are commonly available for NRIs and are rated by agencies such as CRISIL, ICRA or CARE. NRIs may also invest in NCDs if the issuing company permits NRI participation.

• Repatriable and Non-Repatriable Options

Certain NRI bonds allow full repatriation of principal and interest when invested through NRE or FCNR accounts. Others are available on a non-repatriable basis when investments are made through NRO accounts.

• Can be Sold in the Secondary Markets

Certain NRI bond investment options, particularly government bonds, can be sold in the secondary market. This feature of NRI bonds ensures easy liquidity for the investor. 

• Multiple Maturity Choices

NRI bonds offer a wide range of maturities, ranging from short-term options of a few months to long-term bonds of up to 40 years. This can help NRIs match investments with their cash-flow needs and goals.

• No Investment Cap

There are no caps on investing in various types of NRI bonds through the FAR route (i.e. in government bonds and PSU bonds). However, for corporate bonds, investment cannot exceed 5% of the bond series. 

Benefits of Investing in NRI Bonds

The key benefits of NRI bonds are listed below:

1. Portfolio Diversification

One of the important benefits of investing in NRI bonds is diversification. These instruments help balance risk across asset classes by adding a stable fixed-income component to an NRI portfolio.

2. High Liquidity 

Several NRI-eligible securities can be sold in the secondary market. This offers flexibility and access to funds when required.

3. Convenient for Meeting Emergency Needs

Government securities and certain PSU bonds can be sold quickly or used as collateral for loans. This makes them useful during urgent financial situations.

4. Regulated and Transparent Structure

Government securities, PSU bonds and high-rated corporate bonds offer a regulated environment with predictable NRI bond interest rates, making them easier to evaluate and monitor.

5. Risk-Free Options 

Government securities included in NRI bond investment options are considered safe because they are backed by the Government of India. These instruments offer NRIs a risk-free way to participate in the debt market.

6. Repatriable Investments

Many benefits of investing in NRI bonds include the ability to repatriate both principal and interest. When purchased through NRE or FCNR accounts, these bonds allow NRIs to transfer returns to their country of residence as per repatriation rules.

Key Considerations for NRI Bond Investments

Here are some key consideration for any one looking at NRI bond investment options:

1. Taxation Rules

NRI bond taxation depends on the type of bond and holding period. A few tax rules to keep in mind include:

• Interest income is taxed under “Income from Other Sources” unless the bond is tax-free. 
• Capital gains tax applies if bonds are sold before maturity. STCG is applicable at slab rates for bonds sold before 12 months from the date of purchase. LTCG is applicable at 12.5% (plus surcharge and cess) if the bond is sold after 12 months and gains are above Rs. 1.25 Lakhs.
• NRIs living in countries that have a DTAA (Double Tax Avoidance Agreement) with India can claim a foreign tax credit for the tax already paid in India.

2. Investment Limits

NRIs can invest up to 5% of a company’s paid-up capital or bond series value in corporate bonds.

3. Issuer Credit Quality

Government securities carry the lowest default risk. For other instruments, NRIs should review credit ratings before selecting NRI bond investment options.

Conclusion: Should You Explore NRI Bond Investments?

NRI bonds offer fixed-income exposure through government securities, PSU bonds and corporate bonds. Understanding the features of NRI bonds, NRI bond interest rates, NRI bond repatriation rules and NRI bond taxation helps you assess how these instruments fit into your investment approach.

To explore NRI bond investment options easily, you can use GoldenPi, where NRIs can review eligible bonds and invest through a simple process:

• Sign up for an account on GoldenPi
• Select an NRI-eligible bond from the available options
• Monitor your investment and track maturity updates

FAQs on NRI Bonds

1. What are the repatriation rules regarding NRI bond investments?

Repatriation depends on the account used. NRI bonds purchased through NRE or FCNR accounts are generally fully repatriable, allowing both principal and interest to be transferred abroad. 

Investments made through NRO accounts follow non-repatriable rules, except for permitted limits under RBI guidelines (currently USD 1 million per financial year).

2. Are NRI bond interest rates fixed?

Many NRI bonds offer fixed interest rates, providing scheduled coupon payments. Some instruments may have floating rates, but most government securities and PSU bonds available to NRIs follow fixed-rate structures.

3. Can NRIs invest in perpetual bonds?

Yes, NRIs can invest in perpetual bonds only if the issuing company or bank specifically allows NRI participation. Eligibility depends on the issuer’s terms, RBI guidelines and the classification of the bond.

4. What are NRI bond taxation rules?

Interest earned on NRI bonds is usually taxable in India under “Income from Other Sources,” unless the bond itself is tax-free. 

Capital gains tax may apply if the bonds are sold before maturity, with rates depending on the holding period and bond type. STGC for a holding period of less than 12 months is applicable at slab rates, while LTCG on holdings of over 12 months applies at 12.5% (if gains are above Rs. 1.25 Lakhs).

Disclaimer: 

This information is for general information purposes only. GoldenPi makes no guarantee on the accuracy of the data provided here; the information displayed is subject to change and is provided on an as-is basis. Nothing contained herein is intended to or shall be deemed to be investment advice, implied or otherwise. Investments in debt securities/ municipal debt securities/ securitised debt instruments are subject to risks including delay and/ or default in payment. Read all the offer related documents carefully.

Bonds or non-convertible debentures (NCDs) are regulated by the Securities and Exchange Board of India and other government authorities. GoldenPi Securities Private Limited is a registered debt broker and acts as a distributor and not as a manufacturer of the product.