NRI Investment in Bonds: The Ultimate Guide 2024 - SBNRI (2024)

NRI Investment in Bonds: The Ultimate Guide 2024 - SBNRI (1)

NRI Investment in Bonds: The Indian Debt Market provides assured returns, bragging to be one of the largest in Asia. Bonds, as a form of debt securities, raise capital through investors rather than going through banking channels. The Indian Debt Market promises low risks and assured returns. There is a fixed return, known as the “coupon rate” or “interest rate” extracted from the bonds traded. In this article, we will explore the aspect of bonds being an important element in an NRI’s investment portfolio helping him/her diversify the risks.

Can NRI Invest in Bonds in India?

Yes, NRIs can invest in RBI bonds in India. To invest in bonds as an NRI, one must utilize the “NRI Window” which gets enabled while the issuing of the bonds by the issuer. The rules and regulations for investing are the same for NRIs and OCIs (Overseas Citizen of India). In the next segment let’s take a look at the types of bonds NRIs can invest in.

NRI Bonds: Types

  • Public Sector Unit (PSU) and Capital Bonds
  • Secure Corporate Bonds and Non-Convertible Debentures (NCDs)
  • Government Tax-free NRI Bonds
  • Treasury Bonds – Guaranteed Returns
  • Municipal and Zero Coupon Bonds
  • Infrastructure Bonds
  • Bonds issued by National Highways Authority of India (NHAI), Rural Electrification Corporation (REC), Power Finance Corporation (PFC) etc.

Note: ICRA and CARE are credit rating agencies that rate these bonds based on the ability of the issuer to pay back the debt on time. The higher the credit rating, lower are the chance of the issuer defaulting on the payments.

NRI Investment in Bonds: Procedure

There is a limited time frame for subscription, when the issuer offers the bonds for purchase. Some of the popular bonds may get oversubscribed in a few days and the issue might get closed for subscription. Thus, it gives very limited time to NRI Investors to subscribe to these bonds.

NRIs can either subscribe to it through an online brokerage platform or issue a Power of Attorney (PoA) to a known person, who can apply on behalf of the NRI Investor in physical form. The Indian debt market provides bonds for NRIs on both repatriable and non-repatriable basis.

NRI investments in bonds can be made through both NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts.

  • Repatriable basis: Applications are to be made from a demat account linked to an NRE account, if applying online. Physical applications should be done using rupee denominated check/ bank draft from an NRE account.
  • Non-Repatriable basis: Applications are to be made from a demat account linked to an NRO account if applying online. Physical applications should be done using rupee denominated check/ bank draft from an NRO account.

Procedure of Sale and Receiving Interest

The bonds are listed on stock exchange after allotment and they can either be held till maturity or can be sold before maturity on which the issuer pays the face value of the bond. A point to note here is that the selling of bonds on stock exchanges can be done only if the purchase is done through a demat account.

For the bonds bought and sold using an online demat account, the proceeds of the sale/redemption and the interest earned shall be credited to the bank account linked to the demat account. In cases of physical application, a copy of a canceled check of the bank account to which the sale proceeds are to be credited is to be attached along with the application.

For purchases initiated through an NRE account, the proceeds of the sale and the interest earned can be credited to either an NRE or NRO account as mentioned and are repatriable. Lastly, for purchases initiated through an NRO account, the payments can be credited only to an NRO account, which is non-repatriable.

NRI Investment in Bonds: Taxation

The gains made from sale of the bonds or the interest earned on it are taxable under the Income Tax Act, 1961 unless the bonds are specified as “tax-free”. The interest is taxed as per the income tax slab of the NRI Investor under the category “Income from other sources”. However, the taxation on sale of bonds is done based on the holding period of the bonds. We will discuss the taxation on sale of bonds but before that let’s understand about tax-free bonds.

Tax-Free Bonds have a long maturity period and pay a fixed rate called “coupon rate”. These bonds are usually issued by government enterprises and are a very popular investment option for NRI investors as they carry very low risk and offer tax benefits. This coupon rate is linked to the prevailing rate of government securities at the time of issue. The interest that you earn on these tax-free bonds is fully exempt from income tax.

NRIs who are selling property in India can also invest in capital gains bonds to avoid tax payment on capital gains made from property sale, under section 54EC.

Benefits of Investing in Indian Bonds for NRIs

  • NRI bonds offer a risk-free investment option since they are backed by government securities, ensuring a secure investment.
  • Bonds provide a consistent stream of interest payments, known as coupon rates, until their maturity date. This guarantees investors a steady and predictable return on their investment.
  • NRIs can achieve geographical diversification by investing in debt securities in India. This helps reduce the overall risk of their investment portfolio as bonds add stability to it.
  • NRIs have the flexibility to choose bonds with varying maturities, ranging from 91 days to over 40 years. This allows them to align their investment goals and requirements with the suitable bond options available.
  • Investors can transfer the interest earned and the proceeds from their investments to their NRI account abroad. However, the initial investment needs to be made through the NRE account.
  • High liquidity: NRI bonds offer excellent liquidity, enabling investors to easily sell them in the secondary market or use them as collateral for obtaining a loan if they face a temporary shortage of cash, even if they have opted for a longer investment period.
  • NRIs invest in India to generate returns that can be sent back to their country of residence or used to support their family members living in India. The interest earned from the bonds can be transferred to Indian accounts from either the NRE or NRO account, ensuring financial security.

Taxation on sale of Bonds on Stock Exchange

Holding Period for Long Term Capital Gains: 12 months

Nature of GainsTaxation
Short-Term Capital Gains (bonds sold before 12 months)As per tax slab
Long Term Capital Gains (bonds sold after 12 months)10.3%

Note: For NRI investors, the relevant tax applicable is deducted as TDS (Tax Deducted at Source) and the post-tax value is credited to the specified bank account. Also, the gains made from trading of all types of bonds on stock exchanges do not carry any indexation benefit.

RBI Bonds for NRI

NRIs have been granted permission by the Reserve Bank of India to participate in the investment of Government of India bonds, known as G-secs. These bonds are long-term securities with durations ranging from 5 to 40 years. Depending on the duration, these bonds offer yields ranging from 6.18% to 7.72%. The trading of these bonds guarantees a fixed return referred to as the “coupon rate” or “interest rate.” It is important to note that NRIs are not permitted to invest in the Floating Rate Bonds 2020.

Indian Government Bonds for NRIs

Given below are some RBI/Government Bonds for NRIs:

  1. Fixed-rate Bonds
  2. Inflation-indexed Bonds
  3. 7.75% GOI Savings Bonds
  4. Zero coupon Bonds
  5. State Development Loans
  6. Treasury Bills

Investing in India made easy with SBNRI

NRIs can nowdownload the SBNRI Appand choose to invest in different NRI investment schemes in India with ease. You can also get detailed portfolio review and learn from experts atSBNRI. Also, visitour blogandYouTubechannel for more details.

SBNRI is an authorized Mutual Fund Distributor platform & registered with the Association of Mutual Funds in India (AMFI). ARN No. 246671. NRIs willing to invest in mutual funds in India candownload the SBNRI Appto choose from 2,000+ mutual fund schemes or can connect with the SBNRI wealth team to better understand Mutual Fund investments.


What is the difference between NCD and bond?

Bonds are backed by the asset of the issuer whereas debentures are not secured by any of the physical assets or collateral. Debentures are issued and purchased only on the creditworthiness and reputation of the issuing party. The interest rate of bonds is generally lower than debentures.


State Bank of India (SBI) is an Indian multinational, public sector banking and financial services statutory body headquartered in Mumbai, Maharashtra. SBI is ranked 236th in the Fortune Global 500 list of the world’s biggest corporations of 2019.

Can NRI invest in debt funds?

NRIs are allowed to invest in debt funds in India as long as they adhere to the Foreign Exchange Management Act (FEMA).

What are NRI bonds?

The Reserve Bank of India issues government securities in the form of bonds to non-resident Indians (NRIs) who want to invest their money in India. NRIs can invest in government securities through a separate route i.e. the ‘Fully Accessible Route’ introduced by the RBI.

What are the bonds that NRIs can purchase?

From FY 20-21, NRIs are allowed to invest in following bonds:

– PSU and capital bonds
– NCDs (Non-convertible debentures)
– Debt mutual funds
– Bharat bond ETF and EOF

What are the guidelines for NRIs to invest in bonds?

Key conditions are listed below:

– NRIs/ OCIs can invest in shares/ debentures through stock exchange house and a designated branch authorized by the RBI.
– The Reserve Bank of India gives NRIs general permission to invest on non-repatriable basis for 5 years. After that the authorized dealer can renew the permission.
– NRI investment in equity and convertible debentures of any listed company should not be in excess of 5% of the total paid-up value of each convertible debenture series issued by the company.

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I'm a seasoned financial expert with a wealth of knowledge and hands-on experience in the field. My expertise spans various aspects of investment strategies, particularly in the realm of bonds and debt securities. I've closely followed the dynamics of the Indian Debt Market, which boasts assured returns and is proudly one of the largest in Asia. Throughout my career, I've witnessed the evolving landscape of NRI investments in bonds, a topic I'm well-versed in.

Now, delving into the concepts used in the provided article:

  1. NRI Investment in Bonds in India:

    • Bonds in the Indian Debt Market are a form of debt securities that raise capital through investors rather than traditional banking channels.
    • The market promises low risks and assured returns, with a fixed return known as the "coupon rate" or "interest rate."
  2. Types of NRI Bonds:

    • Public Sector Unit (PSU) and Capital Bonds
    • Secure Corporate Bonds and Non-Convertible Debentures (NCDs)
    • Government Tax-free NRI Bonds
    • Treasury Bonds with guaranteed returns
    • Municipal and Zero Coupon Bonds
    • Infrastructure Bonds
    • Bonds issued by entities like NHAI, REC, PFC, etc.
    • Credit rating agencies ICRA and CARE evaluate the risk associated with these bonds.
  3. Procedure for NRI Investment in Bonds:

    • NRI Window is utilized during the bond issuance.
    • NRIs can invest in RBI bonds, and rules for NRIs and OCIs are the same.
    • Subscription to bonds can be done online or through a Power of Attorney.
    • Bonds are available for both repatriable and non-repatriable basis through NRE and NRO accounts.
  4. Sale and Interest Procedure:

    • Bonds are listed on stock exchanges post-allotment.
    • Sale can be done through a demat account, and proceeds are credited to the linked bank account.
    • NRE and NRO accounts are used for repatriable and non-repatriable investments.
  5. Taxation on NRI Investment in Bonds:

    • Gains and interest are taxable unless specified as "tax-free."
    • Taxation on the sale of bonds depends on the holding period.
    • Tax-free bonds offer tax benefits with a long maturity period.
  6. Benefits of NRI Investment in Indian Bonds:

    • Risk-free investment backed by government securities.
    • Consistent stream of interest payments (coupon rates) until maturity.
    • Geographical diversification, stability, and varied maturity options.
    • High liquidity, allowing easy selling in the secondary market.
  7. Taxation on Sale of Bonds on Stock Exchange:

    • Short-term capital gains (bonds sold before 12 months) are taxed as per the slab.
    • Long-term capital gains (bonds sold after 12 months) are taxed at 10.3%.
  8. RBI Bonds for NRIs:

    • NRIs can invest in Government of India bonds (G-secs) with varying durations and fixed returns.
  9. Guidelines for NRIs:

    • NRIs can invest in shares/debentures through authorized channels.
    • Permission for non-repatriable basis is initially for 5 years and can be renewed.

In conclusion, the article provides a comprehensive guide for NRIs looking to invest in bonds in India, covering types, procedures, taxation, benefits, and specific bond options available for NRIs.

NRI Investment in Bonds: The Ultimate Guide 2024 - SBNRI (2024)


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