Sevak - Financial Services for NRIs

Investment Overview

Bond investments offer NRIs stable income with predictable returns, but require understanding of tax implications, currency risks, and regulatory compliance across jurisdictions.

Why Bonds are Attractive for NRIs

✅ Benefits

• Predictable income stream
• Lower risk than equity investments
• Portfolio diversification
• Inflation protection (some bonds)
• Tax advantages in certain cases
• Capital appreciation potential

⚠️ Risks

• Interest rate risk
• Currency fluctuation risk
• Credit/default risk
• Liquidity constraints
• Inflation eroding real returns
• Complex tax implications

Types of Bonds Available to NRIs

1. Government Securities (G-Secs)

Central Government Bonds

• 10-year benchmark bonds
• Floating Rate Bonds (FRB)
• Capital Indexed Bonds
• Treasury Bills (91, 182, 364 days)

Risk Level: Lowest (sovereign guarantee)

State Government Bonds

• State Development Loans (SDL)
• Various tenure options
• Slightly higher yield than G-Secs
• State government guarantee

Risk Level: Very Low

2. Corporate Bonds

AAA Rated

Highest credit quality

Yield: G-Sec + 0.5-1.5%

AA Rated

High credit quality

Yield: G-Sec + 1-2%

Lower Rated

Higher risk-return

Yield: G-Sec + 2-5%

3. NRI-Specific Bond Options

Sovereign Gold Bonds (SGBs)

Features:

• Gold price linked returns
• 2.5% annual interest
• 8-year maturity
• Exit option after 5 years

NRI Benefits:

• Hedge against currency risk
• No storage issues
• Capital gains tax exemption on maturity
• Tradeable on exchanges

Bharat Bond ETF

Exchange-traded fund investing in AAA-rated PSU bonds

• Professional management
• Diversified PSU exposure
• High liquidity

• Target maturity approach
• Low expense ratio
• Multiple series available

Tax Implications for NRI Bond Investors

Interest Income Taxation

Bond Type	TDS Rate	Tax Treatment
Government Bonds	30% + surcharge + cess	Taxable as interest income
Corporate Bonds	30% + surcharge + cess	Taxable as interest income
Sovereign Gold Bonds	30% + surcharge + cess	Interest taxable, maturity gains exempt

Capital Gains Taxation

Short-Term Capital Gains (≤ 36 months)

• Tax rate: 30% + surcharge + cess
• Added to total income
• No indexation benefit
• TDS applicable

Long-Term Capital Gains (> 36 months)

• Tax rate: 20% + surcharge + cess
• Indexation benefit available
• Separate from other income
• Lower effective tax rate

Investment Process for NRIs

Open Required Accounts

NRE/NRO bank account, demat account, and trading account with registered broker

Documents needed: Passport, visa, overseas address proof, PAN card

Choose Investment Method

Primary Market:

• Direct from RBI (G-Secs)
• Through banks and brokers
• Competitive bidding

Secondary Market:

• NSE/BSE trading
• Real-time pricing
• Better liquidity

Execute Investment

Place buy orders through broker or banking platform

Settlement: T+1 for government bonds, T+2 for corporate bonds

Monitor and Manage

Track interest payments, market value, and tax obligations

Strategic Considerations for NRIs

Currency Risk Management

INR Appreciation Risk

If INR strengthens against your base currency:

• Bond returns increase in foreign currency terms
• Higher effective yield
• Capital appreciation on currency

INR Depreciation Risk

If INR weakens against your base currency:

• Bond returns decrease in foreign currency terms
• Lower effective yield
• Capital loss on currency

Portfolio Allocation Strategies

Conservative (60-80%)

• Government bonds: 60%
• AAA corporate bonds: 20%
• SGBs: 20%

Focus on capital preservation

Moderate (40-60%)

• Government bonds: 40%
• Corporate bonds: 40%
• SGBs: 20%

Balance of safety and returns

Aggressive (20-30%)

• Government bonds: 20%
• Corporate bonds: 60%
• SGBs: 20%

Higher returns with more risk

Current Market Scenario (2024)

Interest Rate Environment

Current Yields (Approximate):

• 10-year G-Sec: 7.0-7.2%
• AAA Corporate bonds: 7.5-8.5%
• State bonds: 7.2-7.5%
• SGBs: 2.5% + gold price appreciation

Market Outlook:

• RBI policy stance: Accommodative
• Inflation targeting: 4% (+/- 2%)
• GDP growth support focus
• Attractive entry point for long-term investors

💡 Key Takeaways for NRI Bond Investors

• Bonds provide stable income with predictable returns
• Tax implications can be complex - consider DTAA benefits
• Currency risk is significant - factor in exchange rate volatility
• Diversify across government and corporate bonds
• Consider SGBs for inflation and currency hedge
• Long-term holding reduces interest rate risk
• Professional advice recommended for large investments

Guide to Investing in Bonds for NRIs: Types, Taxes & Benefits