Any investment – regardless of security type or issuing country – should be made within the overall context of your diversified investment portfolio. It makes sense to have a small portion of your investments allocated to global investments. The bond market in India is less liquid than the U.S. bond market, but you still have several good options available for investing in India bonds.
The commercial bond market in India is highly illiquid and much smaller than most Western country bond markets. The market for government-issued securities is more robust. As of 2017 the total volume of government and corporate bond issuances outstanding was approximately $1.5 trillion, according to the Asia Securities Industry & Financial Markets Association's report titled "India’s Debt Markets: The Way Forward." Of that amount about 70 percent was in outstanding government bonds. The Indian government has introduced rupee-denominated bonds to foreign market, allowing foreign investors to invest in India while incurring lower risk stemming from currency fluctuations.
Investors who are interested in the various opportunities found in India can directly invest in government bonds through registered dealers and commercial banks alike. Many large international mutual fund companies also allow investors to trade in foreign bond markets.
Investing in Mutual Funds
The traditional investment vehicle for investing in Indian bonds has been mutual funds. There is a good variety of mutual fund companies that specialize in foreign bond and stock markets. One of the most well-known of such companies is Franklin Templeton. You can easily set up an account online or by visiting an investment company's physical branch. The process is similar to opening a savings account. Larger companies offer the most diverse set of options, which give you more flexibility when considering your overall investment risk and return profile.
Investing in Exchange-Traded Funds
Exchange-traded funds are similar to mutual funds, which pool together investors' money to invest in particular types of investments. However, exchange-traded funds are often passive investments tied into existing stock or bond indexes. Because the level of active management is so much lower than with comparable mutual funds, the management fees and transaction costs associated with ETFs are much lower. This makes ETFs a great option for investing in Indian bonds, and you can purchase ETFs the same way you purchase stocks because they are traded on public exchanges. Each ETF is assigned a ticker symbol, just like stocks. If you already have an investment account, you do not need to do anything new to gain access to Indian bond ETFs.
Direct Investing Opportunities
You can also purchase government bonds via registered dealers and commercial banks that act as middlemen for individuals who want to buy Indian bonds. Any large Indian commercial bank, such as the State Bank of India, should be equipped to issue Indian government bonds, tax-free bonds and potentially even bonds issued by the individual states of India. In the United States, the State Bank of India is based in Los Angeles, but it also has branches in New York City and Chicago. In comparison, ETFs offer greater convenience and more investing options.
- Asia Securities Industry and Financial Markets Association: India’s Debt Markets The Way Forward
- Investing: India Government Bonds
- Ishares MSCI India ETF (INDA) Stock Price, Quote, History & News - Yahoo Finance
- Bloomberg: Will India Let Foreigners Buy More Bonds?
- NSE India. "Trading System." Accessed Oct. 16, 2019.
- Securities and Exchange Board of India. "Annual Report 2018–19," Page 64. Accessed Oct. 16, 2019.
- Reserve Bank of India. "Investment in Indian Companies by FIIs/NRIs/PIOs." Accessed Oct. 16, 2019.