Are you an NRI and looking for risk-free or low-risk investment instruments in India? If yes, government securities is the ideal or the best-suited option for conservative investors like you. NRIs, FPIs, and OCIs can invest in government-backed investment securities like T-bills (treasury bills) and government bonds.
Let’s check out what are the types of government securities allowed for NRI investment, the reasons on why to invest in G-secs in India, and how to invest in it.
Before proceeding, let’s first understand what is G-Sec or government securities.
Government Securities
As the name suggests, government securities popular as G-Sec are the instruments issued by the Central or State government of India. As G-secs carry sovereign commitment regarding repayment of principal and payment of interest, it is considered as incredibly safe investment option available to both residents and non-residents. As an investor, you do not need to worry about losing your capital invested in G-sec.
Different types of G-secs are issued by the government for short-term and long-term investment horizons. Following are the types of government-issued securities available for NRI investment in India.
1. T-bills
Government-issued treasury bills or T-bills are short-term debt instruments issued with maturity periods of 91 days, 182 days, and 364 days.
T-bills pay no interest to investors however, they are issued at a discount value while redeemed at face value on maturity.
2. Cash Management Bills (CMB)
Government in consultation with RBI issues cash management bills to meet the temporary cash flow requirements. CMB has a maturity period of less than 91 days. Likewise T-bills, CMBs do not pay any interest but are issued at a discount and redeemed at par or face value.
3. Dated G-Sec
Government-dated securities pays coupon interest (fixed or floating) at regular interval till maturity. Indian government issues such types of securities to fund various projects or balance the country’s fiscal deficit.
These are long-term investment instruments with a maturity period of 5 years to 40 years.
RBI issues government securities in the form of bonds and since 1st April 2020, the government permitted NRIs to invest in government bonds through the “Fully Accessible Route”. Like residents, non-resident Indians are also allowed to invest in government bonds like bonds issued by PSUs (Public Sector Undertakings).
Fixed-rate bonds carry a fixed coupon interest payment for the entire duration of the bond till maturity. However, floating interest rate bonds carry a variable coupon rate. Thus, the coupon interest payment keeps changing as per the announced rate.
Interest on government securities is usually paid on a half-yearly basis.
Can NRI invest in Government Securities?
As guaranteed by the government, G-secs are risk-free, safe, and secure investment instruments with zero default risk. Earlier, investment in government securities was restricted to banks, corporates, and financial institutions but in 2021, it was opened for retail investors as well.
Whether you are a resident or non-resident, you are eligible to invest in government securities. Also, there is no maximum ceiling or restriction on capital invested in G-secs.
US and Canada-based NRI investors cannot subscribe to government securities.
NRI Investment in Government Securities – Process Explained
As an NRI, you are allowed to invest in G-secs using funds from an NRE or NRO account. NRI investment held through the NRE account undertakes investment on a repatriation basis whereas the NRO account is not repatriable.
The process to invest in government securities as an NRI is as simple and identical to that of the resident. One can participate in the online bidding process to subscribe to G-secs through broker or bank.
Through NRI Stockbroker
NRI brokers in India may also allow customers to bid for government securities online through their platform. Whenever a new G-sec is issued by the government, the broker will update its portal.
In India, brokers like Zerodha, Fyers, etc. allow NRIs to participate in the debt products like government securities or bonds, and T-bills using NRO Non-PIS accounts.
- Log in to your trading account.
- Search for government securities. The page will show all the upcoming and open G-secs available for bidding.
- Place a bid online to invest in your choice of instrument.
- The investment bid must be placed for a minimum amount of Rs 10,000 or its multiples.
- Allotted securities will be credited to your NRI Demat account.
Through Bank
- First, submit an application through any authorized bank branch to apply for G-sec. All the banks may not provide the facility to invest in G-secs.
- The authorized dealer bank will apply to the RBI or other institution authorized to deal in government securities.
- Tap to invest in your choice of G-sec instrument. The minimum investment amount in G-sec is Rs 10,000 and multiples of it.
- As an NRI, you can use either your NRE or NRO bank account to purchase government securities, or payment can also be done by issuing a pay order or cheque in favor of RBI or another specified institution.
- You can hold G-sec in your Demat account in a safe manner. Interest on the G-sec you have invested in, will be directly credited to the linked NRE or NRO bank account.
Benefits of NRI investment in G-sec
- As backed by the government, it is a risk-free and safe investment option with guaranteed payment, best suited for risk-aversive NRI investors.
- Wide range of investment options with T-bills, and fixed and floating coupon government securities
- Short-term (T-bills upto 1 year maturity) and long-term government-backed instruments (bonds from 5 years to 40 years maturity) are suitable for investors with different investment horizon.
- Digital safety as you can hold G-secs in your demat account.
- Easy and paperless NRI investment process in government securities.
- Government securities offer better returns than bank deposits.
- G-secs are tradeable instruments, one can easily buy and sell G-Secs in the market just like equity shares, hence, providing liquidity.
- Helps to diversify your investment portfolio in debt asset class and manages portfolio risks.
- Interest on g-secs provides a regular source of income every 6 months to bondholders.
Final Words
Government securities (G-secs) as backed by sovereign guarantee is considered the safest investment option for NRIs. NRI can choose to invest in short-term instruments like treasury bills or invest in long-term government bonds to get a regular interest income every half-year and the principal is repaid on maturity.
