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Fixed Income Option for NRIs

I am an NRI and have invested heavily in mutual funds. My equity fund investments are around Rs 25 lakh. Now I wish to invest in interest yielding bonds, which are 100% safe. Can you suggest something?

I am an NRI and have invested heavily in mutual funds. My equity fund investments are around Rs 25 lakh and that is the maximum I can risk and I am not planning to come out of these funds sometime in the near future. Now I wish to invest in interest yielding bonds, which are 100% safe, 7- 8% is good for me. Can you suggest something?

Deepak Khattar

Since you are heavily invested in equities, which are suppose to be riskier than any other asset class, it is a wise move on your part to ask for much safer options for future investments which can help to compensate for any mishaps on the equity front. Coming to your question, you have a variety of options to choose from, which are safe and yield a reasonable rate of return.

As your prime concern is safety, you have the option of investing in NRE term deposits in which the interest rate is announced by the RBI from time to time and both the principal as well as the interest is repatriable. You can also invest in NRO term deposits under which the current earnings such as dividends, interest etc. are repatriable. Currently, the banks are free to determine interest rates on NRO term deposits. For example, Bank of India is currently offering 3.5 per cent on deposits of 3 years and above. Thus, the rate of return on these term deposits is in a far lower range.

You can also invest in Government securities/ Treasury bills, which are free of credit risk but are susceptible to a higher interest rate risk on account of fixed coupons. The yield on a 10-year government security is currently hovering around 6.2 per cent while that on the 364-day Treasury bill is around 4.5 per cent. In addition to that, you can also have the option of investing in bonds issued by public sector undertakings in India.

However, if you are willing to take a little bit of risk, you can have the option of investing in income funds. They offer a wide variety to suit the varying needs of investors. You are suited to invest in them if your time horizon is 2-3 years. The 3-year average returns for the medium-term debt funds have been more than 10 per cent.

You can diversify your investment across MIPs as well. MIPs usually have around 10-25 per cent exposure into equities, which acts to boost overall returns, with the rest in debt instruments. The 3-year average returns for MIPs have also been more than 10 per cent. But beware, both MIPs and bond funds are not 100 per cent safe and thus do not guarantee any fixed return. The returns here will be market-determined.

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