The times are uncertain. From countries to currencies, everything is shaken. NRIs under such circumstances are taking out their money inaugurating an exit mode that is affecting the Indian Debt Market. With foreign investments taking a dip, the Indian rupee has been under pressure. To counter that, recent notifications by the RBI allow NRIs to invest without limit in specified Government of India (GOI) Securities, commonly referred as G Sec.
In this Article:
- What are Government Securities (G Sec)
- Understanding G Sec: The Concept
- How to Invest in GOI Securities (G Sec) as an NRI?
- How are GOI Securities Issued?
- NRI Investment in Government Securities: Budget 2020
- NRI Investment in GOI Securities: Benefits
- Taxation on NRI investment in G Sec
- Other instruments for NRI Investment in Indian Debt Market
- NRI Investment in GOI Securities: FAQs
Since April 1st 2020, NRIs have been allowed to invest in specified GOI-dated securities without any quantitative limit with the government of India taking a decision to enable a “Fully Accessible Route (FAR)” as a separate channel for this purpose. The Central Bank also upped the limit for Foreign Portfolio Investment (FPI) in corporate bonds to 15% of outstanding stock for FY21 from 9%. Under the FAR, NRIs, OCIs and FPIs are permitted to invest in G Sec.
G Sec is a complex subject. So, let’s take up this topic in this article and break it down into fragments for a clearer understanding.
What are Government Securities (G Sec)
Securities issues by the central and state governments for the purpose of funding various projects or to balance the fiscal deficit are called Government Securities. These securities have a fixed or floating interest rate (coupon rate) which is paid on face value at regular intervals.
There are 3 broad types of GOI Securities:
| Types | Tenure | Purpose | Interest Rate |
|---|---|---|---|
| Govt. Dated Securities | 5-40 years | Development & Fiscal Deficit management | Fixed or Flexible |
| Treasury Bills | Up to 1 year | Issued on a discounted rate and redeemed at face value | No Interest |
| Cash Management Bills (CMB) | Less than 91 days | For temporary cash flow | No Interest |
Understanding G Sec: The Concept
Now, these government securities are issues for simple purposes. The Central and State governments issue these bonds for development work and to balance the fiscal deficit. Treasury Bills are a mechanism for NRIs to get good returns in less time (1 year). The bills are issued at discounted rates and redeemed at face value. (Eg: Say, you get a Rs.100 bill at Rs. 96 that will be redeemed at Rs.100 after maturity). CMBs are an instrument for maintaining temporary cash flow for the government and acts as an investment opportunity to achieve short term goals for the investor.
How to Invest in GOI Securities (G Sec) as an NRI?
- Repatriable Basis: Non Resident External (NRE) Bank Account
- Non-Repatriable Basis: Non Resident Ordinary (NRO) Account
- The minimum amount required for applying in G Sec is Rs. 10,000 and thereafter it should be in multiples of Rs.10,000.
- Submit your application through designated Authorized dealer bank branches. Further, your bank is required to apply to the Reserve Bank of India (RBI) or any other institution notified for dealing in G Sec before the close of banking hours on the specified dates.
- Use NRE/NRO Bank Account for the payment or issue a banker’s pay order or cheque drawn in favour of RBI or any specified office of RBI.
- G Sec can be held in both physical and demat format
- The interest payments are processed on a half-yearly basis which would be credited to the NRE/NRO account as directed by the NRI.
How are GOI Securities Issued?
The government of India issues the G Sec via various means:
- Auction
- With prefixed Coupon Rates
- Tap Sale
The issuance of the G Sec through auction is quite popular. Every time RBI issues a bond, it issues a notification on its website.
An NRI can participate in the auction in the competitive bidding category through a primary dealer or authorised bank branches. The auction held can be either price-based or yield-based.
| Yield-Based | Price-Based |
|---|---|
| New Issuance of G Sec | Re-issuance of G Sec |
| Bidding in terms of yield up to 2 decimals | Bidding in terms of price |
Note: Auction for dated securities is conducted on Friday and that for T-bills is conducted every Wednesday. The settlement of such auctioned G Sec is done on T+1 day.
NRI Investment in Government Securities: Budget 2021
Having mentioned the Foreign Access Route (FAR), here is a list of eligible securities NRIs can invest in using the FAR without any ceiling limit:
| ISIN | Security |
|---|---|
| IN0020190396 | 06.18% GS 2024 |
| IN0020180488 | 07.32% GS 2024 |
| IN0020190362 | 06.45% GS 2029 |
| IN0020180454 | 07.26% GS 2029 |
| IN0020190032 | 07.72% GS 2049 |
| IN0020200054 | 07.16% GS 2050 |
| IN0020200070 | 05.79% GS 2030 |
| IN0020200112 | 05.22% GS 2025 |
Note: In addition to the above, any new issuances of Government securities of 5-year, 10-year, and 30-year tenors will be termed as ‘specified securities’ and would be eligible for investment under the FAR.
NRI Investment in GOI Securities: Benefits
Listed below are certain benefits highlighting why NRIs should invest in GOI Securities:
- Safe and Risk-Free Investment
- Wide Range of tenor options: 91 days to 40 years
- Diversification of investment portfolio of the NRI mitigating the risk factor of the entire portfolio
Taxation on NRI investment in G Sec
| Nature of Income | Taxation |
|---|---|
| Investment Income from specified assets* | 20% |
| Capital Gains from specified assets* | 10% |
*Investment Income from specified assets: ” specified asset” means any of the following assets, namely:-
- shares in an Indian company;
- debentures issued by an Indian company which is not a private company as defined in the Companies Act, 1956 2 (1 of 1956 );
- deposits with an Indian company which is not a private company as defined in the Companies Act, 1956 3 (1 of 1956 );
- any security of the Central Government as defined in clause (2) of section 2 of the Public Debt Act, 19444 (18 of 1944 );
- such other assets as the Central Government may specify on this behalf by notification in the Official Gazette.
*Capital Gains from specified assets: If entire sales consideration is reinvested in specified Assets then no capital gains would arise. However, in case if the whole of the net consideration is not reinvested, then proportionate capital gain will be chargeable to tax.
For more details on Taxation on G Sec for NRI you can access the detailed explanation from NSE.
Other instruments for NRI Investment in Indian Debt Market
- 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.
Investment in Government of India Securities is only complex until you don’t understand the concepts. SBNRI aims at clearing the basic concepts behind NRI Investments in India. In case of any donut or query, you can contact our experts for detailed advisory and assistance. Click on the button below to get in touch with our investment expert.
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NRI Investment in GOI Securities: FAQs
The government of India has allowed NRIs to invest in dated government securities and treasury bills on a repatriation and non-repatriation basis.
The Reserve Bank of India (RBI) has introduced a separate channel, namely ‘Fully Accessible Route’ (FAR), to enable non-residents to invest in specified government bonds with effect from April 1.
An NRI is eligible subscribe to corporate deposits, NCDs and PSU bonds issued in India. However the issuer should specifically enable the ‘NRI Window’ in an offer. Tax free bonds Public issue is open for NRIs to subscribe on both repatriable and non-repatriable basis.
