Are you curious to know what is masala bond? You have come to the right place as I am going to tell you everything about masala bond in a very simple explanation. Without further discussion let’s begin to know what is masala bond?
Masala bonds, also known as rupee-denominated bonds, are a type of debt instrument issued by Indian companies in the overseas market. The term “masala” refers to the blend of spices used in Indian cuisine and is used to indicate that these bonds are denominated in Indian rupees and targeted at foreign investors. In this blog post, we will explore what masala bonds are, how they work, and their benefits.
What Is Masala Bond?
A masala bond is a debt instrument issued by an Indian company in the overseas market and denominated in Indian rupees. The bond is typically issued to raise funds for infrastructure projects, affordable housing, and other social projects. The bond is settled in US dollars, euros, or other foreign currencies, and the interest and principal payments are made in Indian rupees.
How Do Masala Bonds Work?
The process of issuing masala bonds involves several steps. First, an Indian company identifies the need for funds and decides to issue bonds in the overseas market. The company then appoints a lead arranger, who helps to structure the bond and identify potential investors.
Once the bond is structured, the company files a prospectus with the relevant regulatory authorities and begins marketing the bond to potential investors. Investors can be institutional or individual, and the minimum investment size can vary depending on the issuer.
The proceeds from the bond issue are typically used to fund infrastructure projects, affordable housing, or other social projects in India. The interest and principal payments are made in Indian rupees, and the bond is settled in foreign currency.
Benefits Of Masala Bonds
There are several benefits of issuing masala bonds for Indian companies, including:
- Diversification of Funding Sources – Masala bonds provide Indian companies with access to a new source of funding in the overseas market, which can help to diversify their funding sources.
- Lower Costs – Masala bonds can be issued at a lower cost than foreign currency-denominated bonds, as they do not require the company to take on foreign exchange risk.
- Investor Base – Masala bonds can attract a broader range of investors, including those who are interested in investing in India but may not be familiar with the Indian market.
- Brand Building – The issuance of masala bonds can help to build the brand of Indian companies in the international market, which can lead to increased visibility and credibility.
Conclusion
Masala bonds are a type of debt instrument issued by Indian companies in the overseas market and denominated in Indian rupees. They provide Indian companies with access to a new source of funding, diversify their funding sources, and attract a broader range of investors. The issuance of masala bonds can also help to build the brand of Indian companies in the international market. As the Indian economy continues to grow, masala bonds are likely to play an increasingly important role in funding infrastructure projects and social projects in the country.
FAQ
What Is The Use Of The Masala Bond?
Masala Bonds are rupee-denominated bonds issued outside India by an Indian entity. These are debt instruments used to raise money from foreign investors in local currency. The framework for the issuance of rupee bonds overseas falls within the External Commercial Borrowings policy.
Can Indians Buy Masala Bonds?
Characteristics Of Masala Bonds
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.
What Is The Difference Between The Masala Bond And The Maharaja Bond?
Maharaja Bonds which were issued to Indian investors; and the other one was. Masala Bonds that were issued to overseas investors.
What Is The Masala Bond And Euro Bond?
A Eurobond and masala bond is issued outside the native countries, but both are different from each other. A Eurobond is issued in a currency non-native to the issuer’s country, whereas a masala bond is a rupee-denominated bond issued by an Indian company abroad.
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