According to recent reports, the Indian government has rejected requests from groups of Non Resident Indians (NRIs) to be allowed to invest in a tax free 8% savings bond.
Senior government officials have suggested that as the bonds are so highly subsidised by the central government, there must clearly be some limitation on the number of people permitted to invest in them.
It appears that the main reason for not allowing NRIs to subscribe to the tax free bond is the fact that Indian expatriates are generally quite wealthy - with many classed as high-net-worth individuals- and the finance ministry feels that it would be unfair to allow such a group the opportunity to invest in a subsidised bond intended for the less well-off investor.
The present bond is a new version of the Government of India Relief Bond, which was more popularly known as the RBI relief bond. Although the coupon has gradually been decreasing, its 8% yield effectively amounts to 11% due to the tax savings. Last year, to discourage wealthier investors from taking up the bond, the government capped the maximum investment at 200,000 Rupees ($4,300).
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