Here is how NRIs can invest in Government of India Bonds (G-secs)

Last Updated on October 1, 2023 at 9:09 pm

With effect from 01.04.2020, NRIs can invest in Government of India (GOI) Bonds without any ceiling limit in certain specific instruments. Here is how NRIs can invest in Government of India Bonds (aka G-secs or gilts).

Debt investments by NRIs are governed through Foreign Exchange Management (Debt Instruments) Regulations issued by RBI.  Overseas Citizens of India are also eligible to invest in specified instruments.

Government of India Bonds also referred to as “G-sec”  are usually the long term securities ranging from 5 years to 40 years. They can carry a fixed or floating interest rate (coupon) and is payable on the face value (not on the purchase price).

The Union Budget 20-21 (100(1), pg 27) announced that certain categories of Government Securities will be opened up fully for Non-Resident Indians, in addition to the domestic investors. Accordingly, RBI introduced a separate route called ‘Fully Accessible Route’ to enable investments by non-resident Indians in securities issued by Government of India. Hence, with effect from 01.04.2020, NRIs can invest in Government of India (GOI) Bonds without any ceiling limit in certain specific instruments.

Which Bonds are eligible under the ‘Fully Accessible Route’? Currently, the below securities are available for investments to NRIs under Fully Accessible Route without any investment ceiling limits:

Any subsequent government securities issued for 5 year/10 year/30 year period from 01.04.20 will also be eligible under the Fully Accessible Route. Note: NRIs are not eligible to invest in the recently launched Floating Rate Bonds 2020.

The eligible Non-Resident Indians, in this case, is defined as “person resident outside India” as defined in section 2(w) of the Foreign Exchange Management Act, 1999 (42 of 1999) (FEMA).  Overseas Citizens of India are also eligible for making investments.

Are these investments repatriable?

Yes, if the investments is made through fund transfer from abroad through banking channels or if the investment is paid out of funds held in NRE/ FCNR(B) account.

Which account would receive the maturity amount?

1. The amount is credited to the NRO account if the investment was made on non-repatriation basis
2. the amount can be remitted abroad or credited to NRE/FCNR(B)/NRO account is the investment was made on repatriation basis (i.e. the investment was made through fund transfer from abroad through banking channels or paid out of funds held in NRE/ FCNR(B) account.)

What can be the Mode of Holding? Physical/Demat. Holding it in demat is the best option due to obvious reasons of security, transferability and convenience

Which other debt instruments are NRIs are eligible for investing?

1. Treasury Bills: Short term securities with a duration of less than one year.
2. Bonds issued by Public Sector Undertakings
3. Bonds issued by Infrastructure Debt Funds
4. Non-convertible / redeemable preference shares or debentures
5. NPS

Reference: Foreign Exchange Management (Debt Instruments) Regulations, 2019

Is there sufficient Liquidity in these Bonds? Traditionally, the bond markets have seen the participation of institutional buyers. The retail segment has been opened up in the secondary markets, however, the liquidity can be limited.

How are the Bonds issued? 

Competitive Bidding: Institutions such as banks, mutual funds, insurance companies etc participate in the auction and bid competitively for price/yield of a bond.

Non-Competitive Bidding (NCB): Retail investors can submit bids to an “aggregator” or a ”facilitator”, which can be your bank/stock exchanges. The investors do not have to quote a price/yield for the security but have to mention the value of bonds that they wish to buy. More details are available at the NSE Min amount of bid: Rs. 10,000

Allocation: The retail investors are allocated the bonds at the weighted average rate that emerges out of the competitive bidding. The ‘aggregator’ places a single bid consolidated non-competitive bid and subsequently, would transfer the allocated units amongst the individual bidders.

How to invest? NRIs should contact their Banks where they maintain their NRE Account or the stockbroker with which they are maintaining the trading cum demat account. The NRI PIS Account (Portfolio Investment Scheme Account) would enable investments on a repatriation basis. The bids are accepted on selected days, such as – T-Bill Bids on Monday to Tuesday and for bonds, the bids are accepted from Tuesday to Thursday. There can be a possibility that your bank branch or broker may not have the details of the process for investing in these bonds. In such cases, you can contact specialised branches (treasury branches) or primary dealers/authorised dealers appointed by RBI.

Summary: NRI  investments can be complicated owing to various aspects such as RBI/FEMA regulations, the country of residence, tax laws etc. It is advisable to contact a planner/tax consultant who specializes in NRI investments.

This article was written in collaboration with a commissioned writer who is from the financial services industry.

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