Mumbai: Wealth managers are witnessing strong interest from non-resident Indians to open accounts under the new Reserve Bank of India scheme that allows retail investors to buy and sell government securities.
"We are receiving a lot of queries from our NRI investors across the globe, be it the US, UK, Singapore, or Dubai," said Vikram Dalal, managing director at Synergee Capital. NRIs can buy these government bonds through their NRO bank accounts. Dalal said NRIs looking for a steady income stream from long-tenure debt products to meet their parents' cash flows, or to maintain their property back in India, would want to buy these bonds.
Under the retail direct scheme announced by the central bank, an NRI can open his account sitting overseas and buy government securities. Given that interest rates in developed markets are in the range of 1-2%, the yield of 6.5-7% on Government of India bonds attracts investors. Typically, a bond maturing in 2050 is currently available at a yield of 6.91%, while those maturing in 2058-2061 can give a yield of 7-7.1%, say financial planners. These papers pay interest semi-annually and there is no cumulative option. "You get certainty of cash flows as these bonds give a fixed return. You can handle all the investments online," said Harshvardhan Roongta, chief financial planner, Roongta Securities.
NRIs cannot invest in small savings and postal schemes like public provident fund, Kisan Vikas Patra and National Savings Certificate, while tough compliance makes it very difficult to directly invest in PSU or corporate bonds.
NRIs from the US and Canada face restrictions from mutual fund houses and very few allow them to invest. Further, the expense ratio in mutual funds eats into their returns. NRIs can invest in bank deposits and corporate deposits, but these are available for tenures of only 5-10 years.
Long-tenure products give the investor an option to lock in investments at that rate, giving predictability of cash flows. Short-tenure products carry reinvestment risk, making it difficult to plan cash flows, as interest rates could change on maturity.
"NRIs have restrictions on investing in several financial products. This RBI scheme where they can buy government securities gives you sovereign guarantee and they are available with very long tenures, which has attracted attention from NRIs," investment adviser Jitendra Solanki said.
Some financial planners caution against the rupee depreciation risk, as the local currency is known to depreciate every year. "If you take a rupee depreciation of 3%, the returns from these bonds will be lower to that extent," said Vishal Dhawan, chief financial planner at Plan Ahead Wealth Managers. Financial planners also caution investors about mark-to-market losses in a rising interest rate scenario and low liquidity in these bonds, and say investors should buy these with an objective of holding till maturity.
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