In welcome news for Non-Resident Indians (NRI) investors looking to invest in India, the Reserve Bank of India (RBI) has announced that NRIs can now invest in Sovereign Green Bonds issued during the current financial year under the Fully Accessible Route (FAR). This blog will look into the details of Sovereign Green Bonds, what they are, key features, and how NRIs can seize this eco-friendly investment opportunity.
Overview of Sovereign Green Bonds for NRIs
The recent announcement from RBI means that all the Sovereign Green Bonds issued by the Government of India in FY 2023-24 will be classified as specified securities under the FAR. This will allow the NRIs and OCIs to invest in Sovereign Green Bonds with ease. Previously, the sovereign green bonds issued under F.Y. 2022-23 were included in the FAR list. The Government of India aims to borrow Rs 20,000 crore via these green bonds in the current F.Y.
Also read: NRI Investment in Bonds: The Ultimate Guide 2024
What are Sovereign Green Bonds?
Sovereign green bonds are debt instruments issued by governments to raise funds for environmentally friendly projects. They have become increasingly popular as governments seek to combat climate change and improve their environmental policies. In India, the Reserve Bank of India (RBI) has issued guidelines for the issuance of sovereign green bonds. The proceeds from these bonds are used to finance projects such as renewable energy, energy efficiency, and pollution control. This is different from normal bonds where the proceeds or the funds can be used to finance the projects as the bond issuer sees fit.
Also read: RBI Guidelines for NRI Investment in India
Key Features of Sovereign Green Bonds
- Purposeful Investment: Sovereign Green Bonds are specifically designed to attract funds for projects that align with environmental and climate goals. This ensures that investors, including NRIs, are making a positive impact on the environment with their financial contributions.
- Fixed Tenure and Returns: Like traditional bonds, Sovereign Green Bonds come with a fixed tenure and offer regular interest payments. NRIs can enjoy the benefits of stable, predictable returns while supporting eco-friendly initiatives.
- Government Backing: These bonds are issued by the government, providing a high level of security for investors. NRIs can have confidence in the reliability of their investment, backed by the sovereign guarantee.
- Eligibility for NRIs: With the recent regulatory changes, NRIs are now permitted to invest in Sovereign Green Bonds, expanding the investor base and allowing a wider section of the global Indian community to participate in sustainable finance.
Also read: Best Monthly Interest Paying Bonds for NRIs
What is the difference between Sovereign Green Bonds and Green Bonds?
The major difference between sovereign green bonds and green bonds is that sovereign green bonds can only be issued by the national government while green bonds can be issued by any corporates or bond issuing companies. Since sovereign green bonds are backed by the government, they are safer than other green bonds.
How do Sovereign Green Bonds Work?
Sovereign Green Bonds are issued by the Government of India. These bonds have a fixed interest rate and pay interest according to the predetermined period. The investor buys Sovereign Green Bonds, and receives his regular interest payments as per the interest payout schedule. At the maturity date of the bond, the investor/bondholder receives the last interest payment and the principal amount.
Can NRIs invest in Sovereign Green Bonds?
Yes, NRIs can now invest in Sovereign Green Bonds since they are included in the Fully Accessible Route (FAR) list. As per the recent announcement by RBI, Sovereign Green Bonds issued during the F.Y. 23-24 will be included in the FAR list and NRIs can invest in it.
What is Fully Accessible Route (FAR) for NRIs?
In 2020, RBI launched a separate route for Non-Resident Indians(NRIs) to invest in government-issued securities under the Fully Accessible Route (FAR). This is also applicable to Foreign Portfolio Investors (FPI) and Overseas Citizens of India (OCIs).
The FAR route for NRIs allows investments in specified securities under the FAR list. Currently, government securities and all new issuances of 5-year, 10-year, and 30-year tenures will be included in the eligible list under the FAR scheme. Also, there will be no quantitative limit on investments in the eligible securities under the FAR list for the NRIs, OCIs, and FPIs.
Can NRIs invest in Sovereign Gold Bonds?
Sovereign Gold Bonds (SGBs) are financial instruments issued by the Reserve Bank of India (RBI) on behalf of the Government of India, allowing individuals to invest in gold without owning physical gold. Sovereign Gold Bond Scheme was launched in November 2015 by the Government of India under the Gold Monetization Scheme. These bonds are denominated in grams of gold and are a secure and convenient way for investors to participate in the gold market.
However, under the regulations of the Foreign Exchange Management Act (FEMA), 1999, Non-Resident Indians (NRIs) are not permitted to invest in Sovereign Gold Bonds. However, an NRI who previously invested in SGBs before attaining NRI status can retain the bonds until their maturity or request early redemption.
Wrapping Up
The introduction of Sovereign Green Bonds for NRIs marks a significant step towards combining financial growth with environmental responsibility. NRIs now have the opportunity to contribute to India’s sustainable development while enjoying the stability and security associated with government-backed bonds. By investing in Sovereign Green Bonds, NRIs can play a vital role in fostering a greener, more sustainable future for their homeland.
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FAQs
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.
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 bonds are eligible for NRI in India?
- NRIs are allowed to invest in the following bonds:
- PSU and capital bonds
- NCDs (Non-convertible debentures)
- Debt mutual funds
- Bharat bond ETF and EOF
- Sovereign Green Bonds
Can NRI invest in government bonds in India?
- Yes, NRIs can invest in government bonds and securities in India. You can find more details about it here.
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.
