What are Masala Bonds?

Masala Bonds

The much hyped and renowned manufacturing campaign “ Make in India” is gradually  attaining the speed and confidence of  investors on a large scale, internationally.

In this context the name of `Masala Bonds` now, does not appear a riddle/ridicule and/or a mysterious term. Since, as the name suggests, such bonds are being floated in Indian scenario(India,the country famous for the spices added to the meals/food making it mouth watering taste and adding sensation of mouth burning spicy  taste as well )to add attraction for investors for these bonds have been coined such a name.

The investing hand of  World Bank i.e.IFC(International Finance Corporation) made a provision and issued a  in the month of November,2014, bonds valuing a sum of Rs. 1000 crores. The aim of doing so was to facilitate the funding of projects in India.

The governing and regulatory body the Reserve Bank Of India has set terms & conditions in the form of guide lines for those companies whom it has permitted to float such bonds. The so permitted  Indian companies are Non Banking finance companies(like HDFC,India Bulls Housing Finance etc.) and Infra structure investment trusts(such investment groups which gather money from numerous investors for making investment in real estate and infra structure segment)

A few of the salient features of the bonds are narrated below:-

  1. These bonds have been floated to attract foreign investors over seas,only and,majority of investors are from European Insurance companies
  2. These bonds are of course, rupee-denominated bonds but,settlement shall be in dollars to lure/attract the over seas / off shore investors.
  3. These bonds are made lucrative as they will earn an income @ 6.3% during their tenure of 3,5,and 7 years(Maturity period) and, can be revised, in future.
  4. The Ministry of Finance has made a cut in the with holding tax from 20 % to 5%, only, to add another lucrative feature for over seas investors and, free from any capital gain tax.
  5. The bonds issuing companies have allowed to issue bonds with worth limited to 750m$ for minimum maturity period as 5 years, though the is generally kept as 10 years.
  6. These bonds are AAA rated bonds ;listed and traded in London Stock Exchange.
  7. A major benefit of these bonds is that the issuer is not supposed to borne the risk of currency.
  8. Since the bonds shall be listed in the London Stock Exchange, the investors are facilitated with the avenue of keeping an eye on the every  related activity.

It is very explicit from the above narrations that these `Masala Bonds` shall for sure ,add flavour to Indian Economy in the following ways:

  1. It shall prove to be a great helping tool for Indian companies to diversify their bonds portfolio.
  2. It is a great tool bringing forth effective cost cutting in payment of interest in comparison to being paid to other  bond holders.
  3. It will help companies to get investors from over seas with greater quantum of investment; especially those investors, who would like to make investment keeping the higher rates of interests in comparison to other nations, internationally.

Thus, though a common citizen is not directly affected by the `Masala Bonds` but, the increase in GDP, Economic Health of the country and increase in solidarity and bonding with over seas investors and so on, will indirectly help him by dividends paid to him by GOI in improving the avenues of employment, better earnings, better facilities  for upliftment of living standard and so on.

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