One issue that often comes up when someone obtains a status of NRI is how and where he can invest his surplus money in India. While considering different options, NRIs have to check how much tax they have to pay and tax-free options.Read more
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There are various investment options available for NRIs, like mutual funds, real estate, direct equities, etc. However, many NRIs are interested in government bonds.
NRIs make investments in India for different purposes; some want to create a financial backup for families. Some want to have good returns, and some want to diversify their global portfolio of investment. Whatever the case be, investment in NRI bonds is always the right choice for NRIs.
With the declaration of the government securities opened to NRIs, RBI introduced a separate route, 'Fully Accessible Route'. This is for the NRIs to invest in government securities in the form of bonds for NRIs.
With effect from 1st April 2020, NRIs are eligible to invest in government bonds for NRI in India without any ceiling limit in certain specific instruments. The rules and regulations for investment in bonds by NRIs and OCIs are the same.
NRIs have options to invest in 5 years, 10 years, and 30-year bonds from FY 20-21. It is the right of RBI to issue new guidelines from time to time. The following are the types of bonds that NRIs can consider investing:
Under these bonds, the investors don't get any tax exemption, but the interest accrued will be tax-free under section 10 (15) (IV) (h). NRIs can claim deductions by investing in Capital Gain Bonds issued by REC and NHAI under Section 54 EC. These bonds have a 3 year lock-in period.
NCD is a redeemable corporate bond and tradable instrument. They are debt securities and a long-term investment option. The maturity period ranges from 1 to 20 years.
Through debt mutual funds, one can earn fixed interest. NRIs are allowed to invest in mutual funds after they have submitted their FATCA declaration. The investment will be made after deducting money from NRE or NRO account.
Indian securities Bharat bond ETF & FOF are safe options, low cost, and offer better returns, so NRIs are more interested in this product. Bharat Bond ETF combines maturity with the benefits of an ETF.
The government securities have interest rates or coupon rates either in fixed form or floating. These are the advantages of Government securities to avail high returns:
The investment in government securities makes NRI's portfolio more diverse, which reduces the overall risk factor in the portfolio.
At the time of sudden cash needs, government securities can be sold at the secondary market. In the same way, it can be used as collateral to borrow funds in the market.
For NRIs, investing in government securities is very convenient in terms of tenure periods as it ranges from as low as 91 days (3 months) to 41 years.
With a careful and secure transaction, the government securities are safe and risk-free, which is a prominent benefit.
Usually, NRIs prefer to invest in those schemes where they could repatriate their earnings. Investing in bonds is an excellent choice to repatriate all returns.
Reserve Bank of India has enabled NRIs to invest in Government of India bonds-G-sec. They are long-term securities. The tenure range for such bonds is from 5 to 40 years. Based on the tenure, these bonds provide yields between 6.18% and 7.72%.
There is a fixed return, ‘coupon rate’ or ‘interest rate’ obtained from the trading of the bonds. The interest rate may be fixed or floating. NRIs are not allowed to invest in Floating Rate Bonds 2020.
Take a low below at the following key conditions:
It is also necessary to consider the NRI capital gains tax on shares. Since NRIs are allowed to invest in government securities, debentures, listed non-convertible debentures, the tax rate depends upon the type of investment and the period for which they are held.
The equity shares or equity-oriented mutual funds are held for more than 12 months. When the sale of these instruments happens, they shall be taxable at the rate of 10% if the gain on sale is more than Rs 1 lakh. However, if the gain on sale is less than Rs 1 lakh, the gain is exempt from tax if Securities Transaction Tax (STT) is paid to acquire and sell equity shares. STT is required to be paid on the sale of units of equity-oriented mutual funds.
The short-term capital gain happens when equity shares and equity-oriented mutual funds are sold before 12 months. The short-term capital gain is taxable at 15% if STT is paid.
NRIs can also invest in various tax-free bonds in India for NRI to avoid taxes.
India is a developing country, and its fast-growing economy provides immense opportunities for investment for its citizens. People who hold NRI status are also eligible to invest in different schemes launched by the government, which are beneficial and hassle-free. Indian Debt Market, one of the largest in Asia, promises assured returns. While considering other options, investing in NRI Bonds is one of the best choices for NRIs.
All procedures for investments for NRIs have been very convenient and smoothly run. Furthermore, keeping the current pandemic situation in view, all processes and procedures have been performed in the online mode, which proved to be easy and convenient for NRI investors to do transactions with updated information.
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