RBI’s recently launched Retail Bond Scheme is attracting a lot of attention from Non-Resident Indians (NRIs). Under this program, an individual investor can open a Gilt securities account – “Retail Direct Gilt (RDG)” directly on the primary market as well as buy / sell on the secondary market. Non-resident retail investors eligible to invest in government securities under the Foreign Exchange Management Act 1999 are also permitted to open an account with the RBI and invest in government securities through the RDG Scheme. The main reason could be higher returns. “The yield on the Indian government bond at 6.5% to 7% is much higher than developed market sovereign debt which has a similar risk profile. This new regime must therefore be a secured debt option. desirable for NRIs, “said Sonam Srivastava, Founder, Wright Research, SEBI Registered RIA.
NRI investors, according to Abhay Agarwal, founder and fund manager of Piper Serica, SEBI Registered PMS, have limited options for investing in debt instruments in the country. They cannot open a new PPF account. They are not allowed to invest in small, high yield savings plans such as the National Savings Plan and Kisan Vikas Patra. NRIs in the United States and Canada face restrictions from mutual fund companies and very few allow them to invest. In addition, the expense ratio of mutual funds eats up their returns. NRIs can invest in bank deposits and business deposits, but these are only available for terms of 5 to 10 years. “Most of these opportunities, like debt funds and term deposits, come with high fees and taxes,” Agarwal explains. In addition, they must adhere to strict compliances while investing.