Advanced Investment Options for NRIs

You've built wealth over 15 years in Dubai. Your fixed deposits are earning 7%, your mutual funds are doing okay. But you know there's more.

You've heard colleagues talking about AIFs that delivered 18% returns. 

Friends invested in Embassy REIT and get quarterly dividends. Your wealth manager mentioned tax-free infrastructure bonds. 

But every time you Google these terms, you hit a wall of jargon - "Category II AIFs," "pass-through taxation," "SPV structures."

At Belong, we work with hundreds of sophisticated NRI investors in our WhatsApp community. 

The question we hear most: "I want to diversify beyond the usual. But what are these advanced instruments? How do they work? Are they safe? What's the catch?"

This guide breaks down Alternative Investment Funds (AIFs), Real Estate Investment Trusts (REITs), and Bonds in plain language. 

We'll cover exactly what minimum you need to invest, the real risks nobody talks about, how taxation works, and why GIFT City might change everything for you.

By the end, you'll know exactly whether these investments fit your portfolio - and if they do, how to get started.

Why NRIs Need to Look Beyond Fixed Deposits and Mutual Funds

Let's start with the honest truth: traditional investments aren't bad. NRE fixed deposits are safe. Equity mutual funds can deliver good returns. But they have limits.

FDs cap at 7-7.5% annual returns. After inflation in India (currently 5-6%), your real return is barely 1-2%. That's not wealth creation. That's wealth preservation at best.

Equity mutual funds are great for long-term wealth. But they come with volatility. 

A market correction can wipe out years of gains temporarily. And the standard advice? Wait it out. That works if you have 15-20 years. But what if you're 50 and planning retirement in a decade?

This is where sophisticated investors look at alternatives:

  • AIFs let you access private equity, venture capital, real estate funds, hedge funds - opportunities not available in mutual funds
  • REITs give you commercial real estate returns (office buildings, malls) without buying property
  • Bonds offer fixed, predictable income with different risk-return profiles than FDs

As per SEBI data, the AIF industry has grown at ~26% CAGR between June FY19 and June FY25. There are now 1,550 registered AIFs in India managing over ₹13.49 trillion. 

Sophisticated money is flowing here. Why? Because the returns justify the higher risk and complexity.

👉 Tip: Diversification isn't about spreading money equally. It's about different instruments serving different goals. FDs for safety. Mutual funds for growth. AIFs for alpha. REITs for income. Bonds for stability.

The Three-Layer Investment Pyramid for Sophisticated NRIs

Before we dive into each instrument, let's understand where they fit in your overall wealth strategy.

Layer 1: Foundation (60-70% of portfolio)

Layer 2: Growth (20-30% of portfolio)

  • Equity mutual funds
  • Direct equity (if you have time/knowledge)
  • REITs
  • Conservative Category II AIFs (private equity, debt funds)

Layer 3: Alpha Generation (10-15% of portfolio)

  • Category I AIFs (venture capital, startups)
  • Category III AIFs (hedge funds, long-short strategies)
  • Aggressive real estate/infrastructure funds
  • High-yield corporate bonds

The instruments we're discussing today (AIFs, REITs, Bonds) span Layers 2 and 3. They're not your entire portfolio. They're strategic additions.

Part 1: Alternative Investment Funds (AIFs) - The Opportunity Beyond Mutual Funds

What Are AIFs? (In Simple Language)

Think of AIFs as mutual funds' sophisticated cousins. Like mutual funds, they pool money from investors. But that's where the similarity ends.

An Alternative Investment Fund can invest in things regular mutual funds can't touch:

  • Startups and early-stage companies (before they go public)
  • Private companies not listed on stock exchanges
  • Real estate projects and infrastructure
  • Hedge fund strategies (short selling, arbitrage, derivatives)
  • Distressed assets (companies in financial trouble being turned around)

According to SEBI (Alternative Investment Funds) Regulations, 2012, an AIF is a privately pooled vehicle that collects capital from accredited investors to invest in non-traditional assets.

Why would you want this? Because the biggest wealth creation happens before a company goes public. 

If you had invested in Ola, Byju's, or Flipkart when they were private (through an AIF), your returns would dwarf what you'd make from their post-IPO stock price. Of course, you'd also face higher risk - many startups fail.

The Three Categories You Must Understand

SEBI divides AIFs into three categories, and understanding this is crucial because taxation, risk, and regulation differ dramatically.

Category I AIFs - High Growth, High Risk (Venture Capital)

These invest in startups, SMEs, infrastructure projects - sectors the government wants to promote. Category I includes venture capital funds, angel funds, social impact funds.

Think of Sequoia Capital India or Kalaari Capital - they back startups like Zomato or Razorpay when they're tiny. You're betting on the next unicorn.

Risk Level: Very High (many startups fail)
Typical Timeline: 7-10 years
Expected Returns: 15-30% IRR (if successful)
Tax: Pass-through status (more on this later)

Category II AIFs - Balanced Growth (Private Equity & Debt)

The most popular category. Category II AIFs include private equity funds, debt funds, fund-of-funds. They invest in established private companies or provide structured debt.

Think of Everstone Capital or Multiples Private Equity - they invest in profitable businesses like hospitals, schools, manufacturing firms that need growth capital.

Risk Level: Medium to High
Typical Timeline: 4-7 years
Expected Returns: 12-20% IRR
Tax: Pass-through status

Category III AIFs - Active Trading (Hedge Funds)

These use complex trading strategies including leverage and derivatives. Hedge funds, long-short equity funds, PIPE funds fall here.

Risk Level: High (leverage amplifies losses)
Typical Timeline: 1-3 years (some are open-ended)
Expected Returns: Target 12-18% absolute returns
Tax: Taxed at fund level, not pass-through

👉 Tip: If you're exploring AIFs for the first time, start with Category II private equity or debt funds. They offer better risk-reward balance than venture capital or hedge funds.

Minimum Investment: The ₹1 Crore Reality

Here's the first filter: AIFs require a minimum investment of ₹1 crore. There's a small exception - employees or directors of the AIF can invest from ₹25 lakh - but for most investors, it's ₹1 crore. (source)

Why so high? AIFs aren't for retail investors. They're designed for High Net-worth Individuals (HNIs), Ultra HNIs, and institutions. The regulator wants only sophisticated investors who can handle illiquidity, complexity, and higher risk.

Can you split ₹1 crore across multiple AIFs? Yes. But most investors commit ₹1-2 crore to one fund, watch how it performs, then add more.

Fund Commitments vs Actual Investment

Here's something important: When you commit ₹1 crore to an AIF, you don't pay it all upfront. The commitment is typically drawn down over time as the fund finds investment opportunities.

Example: You commit ₹1 crore to a venture capital fund. Year 1, they call 30% (₹30 lakh). Year 2, another 40% (₹40 lakh). Year 3, final 30% (₹30 lakh). Your money stays invested in liquid funds or your NRE account until called.

How Returns Work (and Why They're Unpredictable)

AIFs don't work like FDs where you get 7% every year, guaranteed. Returns are:

  • Unpredictable: Some years zero, some years 40%
  • Back-ended: Most returns come at exit (when the fund sells its investments)
  • Illiquid: You can't withdraw for 3-10 years depending on category

According to industry data, 75% of AIFs have successfully generated positive alpha, meaning they beat benchmark indices. But 25% underperform or lose money.

Real example from our community: An NRI invested ₹1 crore in a Category II real estate AIF in 2019. For three years, he got minimal distributions. 

In 2022, the fund sold a Bangalore property project at a big profit. He received ₹45 lakh - that's a 45% return, but realized over 3 years (about 13% annualized). Not bad, but required patience.

Taxation: The Pass-Through Advantage (Categories I & II)

Category I and II AIFs enjoy pass-through status. This means:

  • The fund itself doesn't pay tax
  • Income and gains are passed directly to you
  • You pay tax as if you made the investment directly

Why does this matter? It avoids double taxation. In a regular company structure, the company pays corporate tax (~25%) and then you pay dividend tax. Pass-through means single-level taxation.

For NRIs, this means:

  • Long-term capital gains (if holding > 3 years): 10% on gains above ₹1 lakh
  • Short-term capital gains: According to your income tax slab
  • Can claim DTAA benefits if applicable

Category III AIFs are taxed at the fund level - they're treated like companies, not pass-through vehicles.

The Real Risks Nobody Tells You

1. Lock-in Period: Your Money is Trapped

AIFs have a minimum lock-in of 3 years, but effective lock-in is often 5-10 years. You cannot withdraw early. There's no secondary market to sell your units.

If you need that ₹1 crore in Year 2 for an emergency? Too bad. It's locked.

2. Manager Risk: You're Betting on People

AIF returns depend entirely on the fund manager's skill. A great manager can turn ₹1 crore into ₹2 crore. A poor one can lose 30%.

Always check:

  • Fund manager's track record (past funds' IRR)
  • Team stability (high turnover is a red flag)
  • Investment thesis (do you understand their strategy?)

3. Concentration Risk: A Few Big Bets

Unlike mutual funds (which hold 50-100 stocks), AIFs make concentrated bets. A venture fund might invest in just 15-20 startups. If 3-4 fail, the fund's returns suffer.

4. Valuation Risk: NAV Can Be Misleading

AIF NAVs (Net Asset Values) are updated quarterly, not daily. And since they invest in private companies, valuations are estimates. A startup might be valued at ₹100 crore on paper, but if it can't raise the next round, that valuation is imaginary.

5. Regulatory Changes

SEBI introduced "Large Value AIF" rules for funds managing over ₹10,000 crore, adding disclosure requirements. Regulations can change, affecting fund operations.

How NRIs Can Invest in AIFs (Step-by-Step)

Under FEMA regulations, NRIs can invest in all three AIF categories. Here's the process:

Step 1: Check Eligibility

  • Must be classified as NRI (use our residential status calculator)
  • Need PAN card
  • Need valid passport and overseas address proof
  • Minimum net worth of ₹2 crore (for some AIFs)

Step 2: Open Necessary Accounts

  • NRE or NRO account with an Indian bank
  • Portfolio Investment Scheme (PIS) account per RBI guidelines
  • Complete KYC with SEBI-registered intermediary

Step 3: Select AIF

  • Research categories (I, II, or III) based on risk appetite
  • Review Private Placement Memorandum (PPM) - the AIF's detailed document
  • Check fund manager track record and past performance
  • Understand fee structure (typically 2% management fee + 20% performance fee)

Step 4: Make Commitment

  • Sign subscription agreement
  • Transfer initial capital from NRE/NRO account
  • Remaining capital called over time as fund deploys

Step 5: Monitor Performance

  • Receive quarterly updates on NAV and investments
  • Cannot withdraw before lock-in ends
  • Can claim DTAA benefits during tax filing

👉 Tip: Don't invest in AIFs you don't understand. If the fund manager can't explain their strategy in simple terms, walk away. Complexity often hides poor fundamentals.

GIFT City AIFs: A Game Changer for NRIs

GIFT City (Gujarat International Finance Tec-City) is India's first International Financial Services Centre. AIFs registered in GIFT City offer unique advantages:

  • Offers tax exemptions on capital gains for specified transactions under IFSC regulations
    • Full repatriability (simplified FEMA compliance for NRIs)
  • Global compliance standards (easier for foreign investors)
  • USD-denominated options available

Several leading AIF managers have set up GIFT City operations specifically to attract NRI capital. This is a relatively new space (post-2020) but growing fast.

At Belong, we're closely watching GIFT City AIFs and will update our community as more options become available.

Part 2: Real Estate Investment Trusts (REITs) - Own Prime Commercial Property Without the Hassle

What Are REITs? (Think Mutual Funds for Real Estate)

Imagine owning a piece of a premium office building in Bangalore's Outer Ring Road. Or a shopping mall in Mumbai's BKC. Sounds great, except these properties cost ₹500-1,000 crore. You can't buy them individually.

That's where REITs come in. A Real Estate Investment Trust pools money from investors to buy and manage commercial real estate. You buy units in the REIT (like shares). The REIT earns rental income from tenants. That income gets distributed to you as dividends.

REITs operate similarly to mutual funds but invest in real estate assets instead of stocks/bonds. The key difference? REITs are listed on stock exchanges. You can buy and sell them anytime.

The REIT Structure: How Money Flows

REITs in India must follow SEBI (REIT) Regulations, 2014. Here's how they work:

  1. Sponsor: The original owner (like Embassy Group or Brookfield) who sets up the REIT
  2. Manager: Professional team that handles operations, leasing, maintenance
  3. Trustee: Independent SEBI-registered entity holding assets for unitholders
  4. SPV (Special Purpose Vehicle): The actual company that owns the properties

The structure looks complex, but it's designed to ensure:

  • Professional management (you don't deal with tenants)
  • Transparency (quarterly reports, audited financials)
  • Regular income distribution (REITs must pay out 90% of net income)

India's REIT Market: The Four Major Players

REITs are relatively new in India. The first REIT launched in 2019. As of 2025, there are four major REITs:

1. Embassy Office Parks REIT (India's first REIT)

  • Portfolio: 33 million sq ft of office space in Bangalore, Mumbai, Pune
  • Major tenants: Amazon, JP Morgan, Microsoft, Goldman Sachs
  • Distribution yield: ~6-7% annually
  • Unit price: ₹360-380 (as of Oct 2025)

2. Mindspace Business Parks REIT

  • Portfolio: 29 million sq ft in Mumbai, Pune, Hyderabad, Chennai
  • Tenants: Accenture, Cognizant, HSBC, Deutsche Bank
  • Distribution yield: ~6-6.5% annually
  • Unit price: ₹300-320

3. Brookfield India Real Estate Trust

  • Portfolio: 14 million sq ft, primarily in Mumbai and Gurugram NCR
  • Tenants: Airtel, Barclays, Accenture
  • Distribution yield: ~7-7.5%
  • Unit price: ₹270-290

4. Nexus Select Trust REIT (Retail-focused)

  • Portfolio: Shopping malls across India
  • Different from office-focused REITs
  • Distribution yield: ~6-7%

👉 Tip: Office REITs (Embassy, Mindspace, Brookfield) tend to be more stable than retail REITs (Nexus) because office leases are longer (5-10 years) while retail leases are shorter and more volatile.

Minimum Investment: Much Lower Than AIFs

This is where REITs shine for accessibility. SEBI reduced the minimum lot size to 1 unit (₹10,000-15,000) in 2021. (source)

But here's the reality: Most REITs trade in multiples of ₹10,000-15,000 per lot in the secondary market. So your actual minimum is closer to ₹10,000-30,000 depending on the REIT's unit price.

This makes REITs far more accessible than AIFs (₹1 crore) or direct commercial property investment (₹5-10 crore).

Returns: The Dual Engine of Income + Growth

REITs offer two types of returns:

1. Distribution Yield (Dividend Income)

REITs must distribute at least 90% of their net distributable cash flows to unitholders. This typically happens quarterly.

Current yields (as of Oct 2025):

Compare this to:

  • NRE FD: 6-7.5% (but taxed for some NRIs)
  • Dividend from equity mutual funds: 1-2% (irregular)
  • Rental yield from direct property: 2-3% (after maintenance hassles)

2. Capital Appreciation (Unit Price Growth)

REIT unit prices fluctuate like stocks. If the portfolio value increases (new properties, higher rents, occupancy improvements), unit price rises.

Historical performance (2019-2025):

  • Embassy REIT: ~50% total return (dividends + price appreciation)
  • Mindspace REIT: ~40% total return

This isn't guaranteed. Embassy Office Parks REIT experienced an 18% price decline in early 2020 due to COVID-19 concerns. But it recovered by 2021 as offices reopened.

Taxation for NRIs: A Bit Complex, But Manageable

REIT taxation varies based on income type and whether the SPV pays corporate tax. Let's break it down:

Rental Income (Distributed by REIT):

Dividend Income:

  • If SPV paid corporate tax: Dividend is tax-free for you
  • If SPV didn't pay corporate tax: Dividend taxed at 20% for NRIs

Interest Income (from REIT's debt investments):

  • Taxed according to your income tax slab
  • 10% TDS if interest exceeds ₹5,000/year (₹10,000 from FY 2025-26)

Capital Gains (when you sell REIT units):

NRIs can claim Double Taxation Avoidance Agreement (DTAA) benefits depending on their country of residence.

Check India-UAE DTAA or India-US DTAA specifics.

The Real Advantages for NRIs

1. Liquidity (Unlike Direct Property)

REITs are listed on stock exchanges and can be bought/sold just like stocks. You can exit in 2 days (T+2 settlement). Try selling a commercial property in 2 days - impossible.

2. Diversification

One REIT unit gives you exposure to 20-30 properties across multiple cities. If one tenant vacates, your income barely drops. With direct property, one vacancy = 100% income loss.

3. Professional Management

No dealing with:

  • Tenant negotiations
  • Maintenance headaches
  • Property tax payments
  • Legal disputes
  • Broker commissions

The REIT's team handles everything. You just collect distributions.

4. Transparency

REITs must publish quarterly reports, audited statements, and occupancy data. You know exactly what you own and how it's performing.

5. Lower Capital Required

₹50,000 vs ₹5 crore for direct commercial property. This is a game changer.

The Risks (Because Nothing is Perfect)

1. Market Volatility

REIT prices fluctuate based on market conditions and economic cycles. Interest rate hikes can push REIT prices down (investors shift to bonds). A recession can reduce rental demand.

2. Tenant Concentration Risk

If a REIT's portfolio is heavily dependent on one or two major tenants (e.g., 40% of rental income from Accenture), and they vacate, income drops sharply.

3. Sector Risk

Office REITs suffered during COVID-19 as work-from-home became popular. Retail REITs struggle when e-commerce grows. You're exposed to sector-specific headwinds.

4. Regulatory Changes

Government policies on real estate, GST on commercial property, or changes in tax treatment can impact REIT returns.

5. Limited Capital Appreciation vs Direct Property

Direct property in Bangalore might 3x in 10 years. REIT units might grow 50-70%. You trade explosive upside for stability and liquidity.

How NRIs Can Invest in REITs (Practical Steps)

NRIs are eligible to invest in Indian REITs under FEMA regulations. Process:

Step 1: Open Required Accounts

  • NRE or NRO bank account
  • Demat and trading account (link with NRE/NRO account)
  • NRE PIS account for transacting in secondary markets

Step 2: Select REIT

  • Analyze REITs based on yield, asset portfolio, tenant quality
  • Check occupancy rates (>90% is good)
  • Review historical distribution consistency

Step 3: Purchase Units

  • IPO Route: Apply when new REIT launches (like Embassy did in 2019)
  • Secondary Market: Buy units via stock exchange (NSE/BSE) like buying shares
  • Use your trading app (Zerodha, ICICI Direct, HDFC Securities)

Step 4: Receive Distributions

  • Dividends credited quarterly to your linked bank account (NRE/NRO)
  • Tax deducted at source based on your residency

Step 5: Monitor Performance

  • Track quarterly updates from REIT
  • Review occupancy rates, rental growth, new acquisitions
  • Rebalance if needed

Step 6: Repatriate Funds (if using NRE account)

👉 Tip: Many NRIs use REITs as their "India real estate exposure" instead of buying physical property. It solves the hassles of property management from abroad while providing similar income.

Also Read -Documents Required for NRI Account Opening in India - Full Guide

Part 3: Bonds - Fixed Income for the Conservative Sophisticated Investor

What Are Bonds? (The Basics Most People Skip)

A bond is a loan. When you buy a bond, you're lending money. The borrower (government or company) promises to:

  1. Pay you fixed interest (called "coupon") every year
  2. Return your principal at maturity

Bonds allow investors to lend money to companies/governments in exchange for regular interest payments and return of principal at maturity.

Also Read -How to Invest in Bonds - Beginner's Guide for NRI

Why would you buy bonds when fixed deposits exist? Three reasons:

  1. Variety: Bonds come in many flavors (government, corporate, tax-free, zero-coupon)
  2. Liquidity: Many bonds trade on exchanges (you can sell before maturity)
  3. Higher yields: Corporate bonds can offer 8-10% vs FD's 7%

Types of Bonds Available to NRIs

1. Government Securities (G-Secs) - The Safest

Issued by the central or state governments. These are the safest bonds in India - backed by the government's ability to tax and print money.

Types:

  • Treasury Bills (T-Bills): Short-term (up to 12 months), zero-coupon bonds
  • Government Dated Securities: Long-term (5-40 years), fixed coupon
  • State Development Loans (SDLs): Issued by state governments, slightly higher yield than central G-Secs

Current yields (Oct 2025):

  • 1-year T-Bill: ~6.5%
  • 10-year G-Sec: ~7%
  • SDL: ~7.3%

Also Read - Can NRIs Invest in Government Bonds and Treasury Bills?

As an NRI, you can invest through RBI's Retail Direct platform. More on this later.

2. Tax-Free Bonds - The NRI Favorite

Issued by government-backed PSUs like IRFC, NHAI, PFC, REC, HUDCO. The magic: interest income is 100% tax-exempt under Section 10(15)(iv)(h) of the Income Tax Act.

Yield: Typically 5.5-6.5% (lower than taxable bonds because of tax benefit)
Tenure: 10-20 years
Minimum Investment: ₹10,000

Wait, tax-free sounds amazing. What's the catch? The Indian government hasn't issued new tax-free bonds since 2016. You can only buy existing bonds in the secondary market, where prices fluctuate.

Example: An NHAI 2016 tax-free bond with 6% coupon and 2031 maturity might trade at ₹103 (above face value) because interest rates have fallen since 2016. You'll get 6% on ₹100 face value, but you're paying ₹103 to buy it. Your effective yield is lower.

Still worth it? For NRIs in high-tax countries, yes. A 6% tax-free return beats an 8% taxable return if your tax rate is 25%+.

3. PSU & Infrastructure Bonds - The Sweet Spot

Issued by PSUs where government holds majority stake (NTPC, Power Finance Corporation) or infrastructure companies (NHAI, IFCI).

These aren't tax-free, but they're safe (government backing) and offer better yields than G-Secs.

Yield: 7.5-8.5%
Risk: Low (AAA-rated)
Tenure: 10-15 years
Minimum Investment: ₹10,000

NRIs seeking stable returns and tax benefits can invest in PSU bonds and infrastructure bonds.

4. Corporate Bonds & NCDs - Higher Return, Higher Risk

Corporate bonds and Non-Convertible Debentures (NCDs) are issued by private companies.

Yield depends on credit rating:

  • AAA-rated (safest): 8-9%
  • AA-rated: 9-10.5%
  • A-rated and below: 10-14% (riskier)

Companies issuing NCDs: HDFC, ICICI Bank, Bajaj Finance, Mahindra Finance, Tata Capital

Risk: Company-specific. Check credit ratings (CRISIL, ICRA, CARE). AAA is safest. BBB and below is risky.

5. Capital Gains Bonds (Section 54EC) - The Tax Saver

Issued by REC and NHAI under Section 54EC. Special feature: If you sell property and reinvest capital gains in these bonds within 6 months, you save capital gains tax.

As per Section 54EC, you can reinvest up to ₹50 lakh to claim capital gains tax exemption. Minimu Lock-in period: 3 years

This is huge for NRIs selling inherited property in India and facing 20% LTCG tax.

Also Read -Tax Exemption Under Section 54 and Section 54F for NRIs: Your Complete Tax-Saving Guide

6. Bharat Bond ETF - The Modern Approach

Bharat Bond is an ETF (Exchange-Traded Fund) that invests in bonds of PSUs and government-backed companies.

Why does this matter? You get:

  • Diversification across multiple PSU bonds
  • Liquidity (can buy/sell on exchange)
  • Low expense ratio (~0.0005%)
  • Target maturity dates (Bharat Bond 2030, 2031, etc.)

Current yield: ~7.5-8%
No lock-in (but best held till maturity)

NRIs can invest through their Demat accounts. Taxed like debt mutual funds.

Minimum Investment and Accessibility

  • Government Securities: ₹10,000 minimum via RBI Retail Direct
  • Tax-Free Bonds: ₹10,000 (secondary market)
  • PSU Bonds: ₹10,000-1 lakh depending on issue
  • Corporate NCDs: ₹10,000-1 lakh (varies by company)
  • Bharat Bond ETF: 1 unit (~₹1,000)

Bonds are more accessible than AIFs but less liquid than REITs. You can trade bonds, but volumes are low. If you want to sell a corporate bond before maturity, you might get a lower price due to illiquidity.

How Bond Returns Work (and the Interest Rate Risk)

Let's say you buy a 10-year government bond with:

  • Face value: ₹100
  • Coupon: 7% per year
  • Maturity: 2035

You'll receive ₹7 every year as interest. In 2035, you get your ₹100 back. Total return: 7% per year.

Simple, right? But here's the complication: interest rate risk.

If interest rates in the economy rise to 8%, your 7% bond becomes less attractive. If you try to sell it before maturity, buyers will pay less than ₹100 (maybe ₹95) because they can get better returns elsewhere. Your capital value drops.

Conversely, if interest rates fall to 6%, your 7% bond is valuable. Buyers will pay more than ₹100 (maybe ₹105). You make a capital gain.

This is why longer-tenure bonds (20-30 years) are riskier than shorter-tenure bonds (1-5 years) - more time for interest rates to change.

👉 Tip: If you plan to hold bonds till maturity, interest rate fluctuations don't matter. You'll still get your 7% coupon and ₹100 back. Only traders worry about price movements.

Taxation on Bonds for NRIs

Bond taxation depends on the type of bond and holding period:

Interest Income:

  • Taxable bonds: Interest taxed according to your income slab (typically 20% for NRIs on special investment income)
  • Tax-free bonds: Interest fully exempt under Section 10(15)(IV)(h)
  • TDS: 10% TDS if interest exceeds ₹5,000/year (₹10,000 from FY 2025-26)

Capital Gains (if you sell before maturity):

  • Short-term (held \< 3 years for most bonds): According to income slab
  • Long-term (held > 3 years): 10% with indexation benefit

Special Case - Government Securities: Investment income from government securities acquired in foreign currency: 20% flat rate. Capital gains: 10% flat rate.

Can NRIs claim DTAA benefits? Yes. Check India-UAE DTAA or relevant treaty for your country.

How NRIs Can Invest in Bonds

Method 1: RBI Retail Direct (For Government Securities)

With effect from 1st April 2020, NRIs are eligible to invest in government bonds without any ceiling limit.

Step-by-step:

  1. Visit RBI Retail Direct website
  2. Enter basic details and verify with OTP
  3. Complete KYC (Aadhaar-based if in India, or offline KYC)
  4. Link NRE/NRO bank account
  5. Select bonds (G-Secs, SDLs, T-Bills) and purchase
  6. Interest credited directly to linked account

Method 2: Stock Exchange (For PSU Bonds, Corporate Bonds, Bharat Bond ETF)

  1. Open Demat and trading account with broker
  2. Link with NRE/NRO account
  3. Search for bonds in debt segment on NSE/BSE
  4. Place buy order (like buying stocks)
  5. Hold in Demat account

Method 3: IPO/Public Issue (For New Corporate NCDs)

When companies like Bajaj Finance or Tata Capital launch NCDs:

  1. Apply through your Demat account during offer period
  2. Select tranche (Series I, II, III) based on tenure and coupon
  3. Units allotted at face value
  4. Listed on exchange after issue closes

Repatriation:

  • Investments through NRE account: Fully repatriable
  • Investments through NRO account: Subject to limits (consult CA)

Bonds vs Fixed Deposits: The Honest Comparison

Feature
Bonds
Fixed Deposits
Issuer
Govt/PSU/Company
Banks
Safety
Varies (AAA is safe)
Very safe (deposit insurance up to ₹5 lakh)
Yield
6-10% depending on type
7-7.5% for NRE/NRO FDs
Tax Treatment
Some bonds are tax-free
Liquidity
Can sell on exchange (but illiquid)
Premature withdrawal (with penalty)
Tenure
1-30 years
1-10 years
Minimum Investment
₹10,000
₹10,000-25,000
Interest Payment
Annual/semi-annual
Monthly/quarterly/cumulative

When should you choose bonds over FDs?

  • If you want tax-free income (tax-free bonds)
  • If you want potentially higher returns (corporate bonds)
  • If you want to save capital gains tax (Section 54EC bonds)
  • If you want exposure to different types of debt instruments

Choose FDs if you want:

  • Simplicity (no trading, no complexity)
  • Guaranteed returns
  • Easy premature withdrawal (despite penalty)
  • USD denomination (FCNR FDs)

At Belong, we see many investors using both: FDs for liquidity and safety, bonds for optimization and tax efficiency.

The GIFT City Advantage: Why This Changes Everything

GIFT City (Gujarat International Finance Tec-City) is India's first International Financial Services Centre. Think of it as India's own "Singapore" or "Dubai" for financial services.

Why does GIFT City matter for AIFs, REITs, and Bonds?

For AIFs:

For Bonds:

  • GIFT City allows issuance of USD-denominated bonds
  • Tax-efficient structures for NRI investors
  • Access to international bond markets from India

For REITs:

  • GIFT City is exploring REIT structures similar to Singapore's REITs
  • Would allow NRIs to invest without complex tax filings
  • Still in early stages (as of 2025)

The biggest advantage?

GIFT City investments allow NRIs to invest without facing FEMA restrictions and benefit from zero capital gains tax.

At Belong, we're deeply involved in GIFT City. Our GIFT City FDs already offer tax-free USD returns. We're watching the AIF and bond space closely.

Check our GIFT City Alternative Investment Funds tool for the latest options (updated monthly).

How to Build a Diversified Portfolio with AIFs, REITs, and Bonds

You don't pick one. You use all three strategically.

Here's a sample portfolio for a 45-year-old NRI with ₹2 crore to invest:

Foundation Layer (60%): ₹1.2 crore

  • ₹40 lakh: GIFT City FDs (USD, tax-free, 5% returns)
  • ₹30 lakh: NRE FDs (INR, tax-free, 7% returns)
  • ₹30 lakh: Debt mutual funds (liquid, 6-7% returns)
  • ₹20 lakh: G-Secs and tax-free bonds (5.5-7% returns)

Growth Layer (30%): ₹60 lakh

  • ₹20 lakh: Equity mutual funds (best mutual funds)
  • ₹15 lakh: Embassy REIT + Mindspace REIT (6.5% yield + capital appreciation)
  • ₹15 lakh: Category II AIF - Private Equity (target 15% IRR over 5-7 years)
  • ₹10 lakh: PSU bonds + Bharat Bond ETF (7.5-8% returns)

Alpha Layer (10%): ₹20 lakh

  • ₹10 lakh: Category I AIF - Venture Capital (high risk, target 20%+ IRR)
  • ₹10 lakh: Category III AIF - Long-short hedge fund (target 12-15% absolute returns)

This portfolio gives you:

  • Stable income from FDs and bonds
  • Growth from mutual funds and REITs
  • Alpha potential from AIFs
  • Diversification across asset classes
  • Mix of INR and USD exposure
  • Tax efficiency (GIFT City FDs, tax-free bonds, pass-through AIFs)

As you age, shift more to Foundation Layer. At 60, maybe 80% foundation, 15% growth, 5% alpha.

👉 Tip: Rebalance annually. If your AIFs do well and become 20% of portfolio, book some profits and move to bonds for stability.

The Practical Challenges (That Nobody Talks About)

Challenge 1: Minimum Investment Barriers

AIFs need ₹1 crore. Even if you have ₹2 crore total savings, putting 50% in one AIF is risky. You need at least ₹5-10 crore net worth to comfortably allocate to AIFs.

Solution: Start with REITs (₹50,000 minimum) and bonds (₹10,000 minimum). Build experience. When your wealth crosses ₹5 crore, explore AIFs.

Challenge 2: Information Asymmetry

Finding good AIFs is hard. Most market themselves through private networks, not public websites. You need:

  • Access to wealth managers who know AIF landscape
  • Ability to evaluate PPMs (Private Placement Memorandums)
  • Network to get references

Solution: Join our WhatsApp community. Many members share AIF experiences. Connect with other NRIs who've invested.

Challenge 3: Lock-in Periods

Generally, AIFs have a minimum lock in period of 3 years. You can't access AIF money for 3 to sometimes 10 years. If you need liquidity, you're stuck.

Solution: Never invest emergency fund or money needed in next 3-5 years into AIFs. Only invest truly long-term capital.

Challenge 4: Tax Complexity

REIT taxation has 4-5 different components (rental income, dividend, interest, capital gains). Bonds have different treatments for different types. AIFs have pass-through complexity.

Solution: Work with a CA who understands NRI taxation. Budget ₹25,000-50,000 annually for professional tax filing if you hold these instruments.

Challenge 5: Regulatory Compliance

AIFs require KYC, PIS accounts, FEMA compliance, documentation. Bonds need Demat accounts. REITs need PIS accounts.

Solution: Open all accounts in one go. Use banks like ICICI Bank, HDFC Bank, or Axis Bank that offer NRI-specific services and can help with setup.

Who Should (and Shouldn't) Invest in These Instruments

You Should Consider AIFs, REITs, and Bonds If:

  • You have at least ₹50 lakh-1 crore to invest (beyond emergency fund and home downpayment)
  • You understand that higher returns come with higher risk and illiquidity
  • You have stable income and don't need this money for 5+ years
  • You want to diversify beyond FDs and mutual funds
  • You're comfortable with complexity and willing to learn
  • You have access to good advisors or community support
  • You file taxes properly and can handle complex tax situations

You Shouldn't Invest If:

  • Your entire savings is ₹20-30 lakh (stick to FDs and mutual funds)
  • You might need this money in 1-2 years
  • You don't understand the risks and are investing because others are
  • You can't afford to lose 20-30% in worst case
  • You don't have time to research and monitor investments
  • You're looking for "guaranteed" or "risk-free" high returns (doesn't exist)
  • You're easily stressed by market volatility

Sophistication isn't about using complex instruments. It's about using the right instruments for your situation.

How Belong Can Help You Navigate Advanced Investments

At Belong, we focus on simplifying complex financial decisions for NRIs.

We're not investment advisors who'll pick specific AIFs or REITs for you. But we can:

1. Help you understand the landscape
Our blog breaks down every instrument in simple language. All about AIFs, GIFT City funds, taxation - we cover it all.

2. Provide tools for comparison
Use our FD rates comparison to see how bonds/FDs stack up. Check GIFT City AIFs for new options. Track rupee vs dollar for currency decisions.

3. Connect you with the community
Our WhatsApp community has NRIs who've invested in AIFs, REITs, bonds. Real experiences. Real numbers. Real advice.

4. Offer GIFT City investment options
We're building a curated platform for GIFT City investments. Tax-free, USD-denominated, fully repatriable. Currently offering FDs, expanding to AIFs and bonds.

5. Help with compliance and tax planning
Use our residential status calculator to understand tax implications. Check compliance compass for what regulations apply to you.

Download the Belong app to access all our tools in one place. Track your NRI investments, compare options, and stay updated on new opportunities.

We're not here to sell you products. We're here to help you make smarter decisions with the capital you've worked hard to build.

Your Action Plan: Where to Start Today

If you're convinced these instruments fit your portfolio, here's your 30-day plan:

Week 1: Education & Assessment

  • Read our complete guides on GIFT City investing and NRI taxation
  • Calculate your investable surplus (total savings minus emergency fund minus short-term goals)
  • Determine your risk appetite and investment horizon
  • Check your residential status for tax planning

Week 2: Account Setup

  • Open/verify you have NRE or NRO account with a major bank
  • Open Demat and trading account (if investing in REITs/bonds)
  • Apply for PIS account for stock market transactions
  • Complete KYC for AIF investments (if pursuing AIFs)
  • Register on RBI Retail Direct for government bonds

Week 3: Research & Shortlist

  • For REITs: Compare Embassy, Mindspace, Brookfield based on yield and portfolio
  • For Bonds: Check current G-Sec yields, explore tax-free bonds in secondary market, review Bharat Bond ETF
  • For AIFs: Research Category II private equity or debt funds (talk to wealth managers, get PPMs)
  • Join our WhatsApp community and ask others about their experiences

Week 4: Start Small & Scale

  • Invest ₹50,000-1 lakh in one REIT (buy 100-200 units)
  • Buy ₹1-2 lakh of government bonds or Bharat Bond ETF
  • If pursuing AIFs, commit ₹1 crore to one fund (start with Category II for lower risk)
  • Track performance for 6 months before adding more capital

Ongoing: Monitor & Rebalance

  • Review AIF quarterly reports (if invested)
  • Check REIT distribution announcements (quarterly)
  • Monitor bond portfolio for interest rate changes
  • Rebalance annually to maintain target allocation
  • Use Belong's tools to track overall NRI portfolio

The key is starting. Not with ₹1 crore. But with ₹50,000 in a REIT or ₹10,000 in a bond. Learn by doing. Build conviction. Then scale.

Your portfolio won't transform overnight. But over 5-10 years, adding these instruments can meaningfully improve your returns and reduce concentration risk.

Welcome to sophisticated investing. We're here to guide you every step.

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