Bonds and Government Securities for NRIs
Overview
Bonds are issued by companies and governments to fund new projects or expand existing ventures. Public Sector Undertaking bonds issued by central or local governments are generally considered less risky, while private company bonds carry varying levels of risk depending on the company’s credit rating.
Types of Bonds
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Non-Convertible Debentures (NCDs): Secured debt issued by private corporations backed by assets. NCDs hold priority over equity shares in case of repayment but do not benefit from company profits as stocks do.
Investment Options for NRIs
NRIs can invest in corporate bonds and government securities, which offer fixed returns. If purchased through NRE or FCNR accounts, the proceeds can be repatriated to the NRI’s country of residence. Interest on some government securities may be tax-exempt, though these may offer lower interest rates compared to taxable bonds.
Choosing Between Bonds and Bank Deposits
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Bank Deposits: Typically offer interest rates for short tenures (1-2 years) and may not be available for longer durations (e.g., 10 years).
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Long-Term Investments: NRIs should consider long-term deposits (5-10 years) in a falling interest rate scenario to benefit over time. Consider penalties for early withdrawal and the marketability of the debt.
Certificate of Deposits (CDs)
NRIs can subscribe to CDs on a repatriable basis. CDs are highly liquid, non-negotiable money market instruments, issued in Demat form or as promissory notes. They offer higher interest rates than bank deposits and have short-term tenures of less than a year, making them suitable for short-term financial goals. CDs are issued at a discount and redeemed at face value at maturity.
For detailed guidelines, refer to the guidelines on CDs.