Question

The financial instrument, through which Indian companies can raise money from overseas market in Rupees, is known as
1. RBI Bonds
2. Gold Bonds
3. Masala Bonds
4. Overseas Bonds

Answer 1

Correct Answer - Option 3 : Masala Bonds

The correct answer is Masala Bonds.

• Masala Bonds
  • These are rupee-denominated bonds issued outside India by Indian entities.
  • They are debt instruments that help to raise money in local currency from foreign investors.
  • Both the government and private entities can issue these bonds. 
  • Investors outside India who would like to invest in assets in India can subscribe to these bonds. Any resident of that country can subscribe to these bonds which are members of the Financial Action Task Force.
  • These bonds are issued in Indian currency than local currency. Indian corporates usually issue Masala Bonds to raise funds from foreign investors.
  • As it is pegged into Indian currency, if the rupee rates fall, investors bear the risk.
  • The first Masala bond was issued in 2014 by IFC for infrastructure projects in India.

• RBI Bonds
  • These are issued by the Government of India and are eligible to be held by the citizens of the country.
  • The maturity of an RBI Bond is 7 years. While the maturity term is 7 years, one could demand a return at any point in time.
  • However, a penalty is applied to the same.
• Gold Bonds
  • Sovereign Government Bonds are government securities denominated in grams of gold.
  • They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity
  • They are free from issues like making charges and purity in the case of gold in jewellery form.
• A foreign bond is a bond issued in a domestic market by a foreign entity in the domestic market's currency as a means of raising capital.