Residential Mortgage-Backed Securities India: Earn Monthly from EMIs in 2025

Introduction: What If You Could Earn from Home Loans?

What if you could earn money every month—not from your own loan, but from someone else’s?

Sounds strange, right?

Well, that’s exactly what Residential Mortgage-Backed Securities (RMBS) offer. These are new financial products in India where you, as an investor, can earn a regular income from home loan EMIs paid by others.

In May 2025, India saw its very first RMBS listed on the National Stock Exchange (NSE). LIC Housing Finance raised ₹1,000 crore through this product and promised investors a return of 7.26% per year, paid out monthly.

This move is big. It’s not just a new way to invest—it could be the start of a housing finance revolution. And while it’s mostly for big institutions right now, there’s a good chance retail investors like you could get a slice of this income stream in the future.

Let’s break it all down—what RMBS really are, how they work, and whether you should care.

What Are Residential Mortgage-Backed Securities (RMBS)?

Let’s start with something familiar: a home loan.

When someone buys a house, they usually take a loan from a bank or a housing finance company like LIC Housing Finance. Every month, they repay that loan in EMIs (Equated Monthly Installments)—which include both the loan amount and interest.

Now imagine this: what if the bank could take hundreds of these home loans, bundle them together like a package, and then sell that package to investors?

That’s exactly what Residential Mortgage-Backed Securities (RMBS) are.

A Simple Analogy

Think of it like this:
You have 100 friends, and each one promises to give you ₹1,000 every month. That’s ₹1,00,000 in monthly income.

Now, instead of keeping all of it, you decide to share this deal with investors. You say:

“I’ll give you a portion of this monthly money—if you give me a lump sum today.”

That’s what a bank does with RMBS. It sells future EMI income from home loans to investors, in exchange for a one-time payment now.

What Do Investors Get?

Investors who buy RMBS receive regular income—just like interest on a bond. The difference is, this income comes from people repaying their home loans.

It’s a low-risk investment because:

• Home loans are usually repaid on time
• They are backed by real houses
• The securities are often AAA-rated, meaning very safe

Key Point:

RMBS allow banks to raise fresh capital and investors to earn monthly returns—all using something as common as a home loan.

How Do RMBS Work? (Step-by-Step for First-Time Investors)

Now that you understand what RMBS are, let’s walk through how they actually work—step by step, using real-life logic.

Step 1: Banks Give Home Loans

People across India borrow money from banks or housing finance companies (like LIC Housing Finance) to buy homes. They repay this money every month through EMIs.

Step 2: Banks Bundle Similar Loans

Once banks collect enough loans, they group similar ones together—say ₹1,100 crore worth of loans. This bundle becomes the base for the RMBS.

Step 3: Banks Transfer These Loans to a Separate Company

The bank sells this bundle of loans to a company called a Special Purpose Vehicle (SPV). This company exists only to handle these home loans.
This step protects investors, since the SPV separates these loans from the bank’s other businesses.

Step 4: The SPV Issues RMBS

Now the SPV creates investment products called Pass-Through Certificates (PTCs). These PTCs are sold to investors such as mutual funds or large institutions.
Each PTC represents a portion of the monthly income from the loan pool.

Step 5: Investors Earn Regular Returns

As borrowers pay their EMIs, the SPV collects that money and distributes it to the RMBS investors.
This creates a steady monthly income, similar to a fixed deposit—but backed by home loans.

Real Example: LIC Housing Finance RMBS (May 2025)

• Raised: ₹1,000 crore
• Backed by: ₹1,112 crore worth of home loans
• Return: 7.26% annually (paid monthly)
• Term: 20 years
• Ratings: AAA by CRISIL and CARE
• Listed on: NSE
• SPV Name: India Residential Mortgage Trust 2025 01

Final Takeaway:

With RMBS, you earn from other people’s home loan repayments. The bank gives loans. The SPV turns them into investment products. And you receive monthly returns from EMIs.

Who Benefits from Residential Mortgage-Backed Securities (RMBS)?

RMBS don’t just help banks make money—they offer value to multiple players in the financial system. Let’s look at who gains and how:

1. Banks and Housing Finance Companies

Banks and lenders benefit the most. Here’s how:

• They collect EMI payments every month.
• But instead of waiting 20 years to earn all that money, they bundle and sell these loans to raise funds quickly.
• This gives them fresh capital to give out new loans, especially in the affordable housing sector.

Example: When LIC Housing Finance raised ₹1,000 crore by issuing RMBS, it freed up money to offer more home loans.

2. The Indian Government

The government supports RMBS because it helps fulfill key missions like “Housing for All.”

• By encouraging banks to give out more home loans, RMBS pushes housing growth.
• It also creates more transparency in how loans are managed and invested.

That means more homes for families—and more confidence for investors.

3. Institutional Investors (Mutual Funds, Pension Funds)

Big financial institutions love RMBS. Why?

• They offer stable monthly income
• They come with high safety ratings (like AAA from CRISIL or CARE)
• They help these funds match long-term liabilities—just like fixed deposits, but with better returns

So, if you invest in mutual funds, chances are some of your money may already be linked to RMBS.

4. Retail Investors (That’s You)

Right now, RMBS are mostly sold to big institutions—but this could change.

• In the future, if SEBI allows RMBS to be included in mutual funds or debt ETFs, regular investors will also get a chance to invest.
• You could earn monthly income—just like rent—but from home loans, not property.

Final Thought:

RMBS are a win-win for everyone involved:

• Banks get liquidity
• Government supports affordable housing
• Investors earn regular returns
• You get a new low-risk investment option (in the near future)

When Did RMBS Start in India?

While countries like the United States have been using mortgage-backed securities for decades, India had kept this idea on the sidelines—until now. That changed in May 2025, when India took a major step forward in modernizing its housing finance system.

The first official Residential Mortgage-Backed Security (RMBS) was listed on the National Stock Exchange (NSE) by LIC Housing Finance, one of the country’s leading home loan providers. This wasn’t a soft launch—it was a ₹1,000 crore public issue backed by ₹1,112 crore worth of housing loans. Investors who bought these securities were promised a 7.26% annual return, paid monthly, over a period of 20 years.

To give investors confidence, credit rating agencies like CRISIL and CARE gave the RMBS a AAA rating, which is the highest possible. The product was structured under a new trust named India Residential Mortgage Trust 2025 01—a name we might hear more often in the coming years.

But why now?

India is currently undergoing a housing transformation. Government initiatives like ‘Housing for All’ and PMAY (Pradhan Mantri Awas Yojana) aim to put a roof over every Indian family. To support this, housing finance companies need money—not in small bits, but in thousands of crores. RMBS offers them a way to recycle funds quickly by turning long-term loans into instant capital.

So, while the concept may be new to the Indian public, it has come at the right time. The 2025 debut wasn’t just about LIC Housing Finance raising money—it was about opening a door to a new kind of investment product in India’s growing financial market.

Global Footprint, Indian Debut

In countries like the U.S., RMBS have been around since the 1980s. They’re traded like bonds and considered essential to mortgage markets. India might be late to the game, but it’s off to a promising start—with high-quality assets and strong regulatory support.

Can Retail Investors in India Invest in RMBS?

Yes, for the first time in India, retail investors can access Residential Mortgage-Backed Securities (RMBS)—thanks to the RBI Retail Direct Scheme. While RMBS were earlier limited to mutual funds and large financial institutions, the landscape is slowly opening up.

India’s first listed RMBS by LIC Housing Finance in May 2025 was mainly aimed at institutional buyers. But now, with support from the RBI and platforms like RBI Retail Direct, individuals finally have a window into this once-exclusive market.

RBI Retail Direct Scheme: A New Gateway

Launched by the Reserve Bank of India, this initiative allows individuals to open a Retail Direct Gilt (RDG) Account through rbiretaildirect.org.in. Once registered, investors can buy and sell various government-backed securities—including RMBS in the secondary market via the NDS-OM platform (Negotiated Dealing System – Order Matching).

It’s a big step forward. The process is paperless, user-friendly, and allows investors to participate in products that were earlier out of reach.

What This Means for You

If you’re a retail investor looking for stable, long-term income, RMBS could offer just that. These securities are often backed by thousands of home loans and are usually AAA-rated—which means they carry relatively low risk.

You’re essentially earning interest from other people’s EMI payments, without actually becoming a lender yourself.

Plus, with RBI acting as a facilitator, the transparency and trust levels are significantly higher compared to typical corporate bond markets.

A Quick Word on RDCL

The government has also set up RMBS Development Company Limited (RDCL) to help build India’s RMBS market. While RDCL mainly works with big investors today, its efforts will likely make RMBS more accessible and efficient for everyone—including retail investors—over time.

In short, the doors are slowly opening. You may not see RMBS flooding your trading app just yet, but they’re no longer out of reach. And that’s a big deal for long-term investors looking for steady, secure returns.

Risks & Things to Know Before You Invest in RMBS

While Residential Mortgage-Backed Securities (RMBS) sound like a great way to earn stable income, it’s important to understand that—like any investment—they come with a few risks and limitations.

They’re not as risky as equities, but they aren’t risk-free either.

Let’s unpack what you should know before jumping in.

1. Risk of Default

Remember, RMBS are backed by home loans given to borrowers. If borrowers fail to repay their EMIs on time—or worse, default—this directly affects the cash flow to investors.

That said, most RMBS in India are backed by prime loans (good credit borrowers), and the securities often carry AAA ratings, meaning the risk is low—but it still exists.

2. Prepayment Risk

Homeowners may repay their loans early—especially when interest rates fall. While that’s great for them, it’s not ideal for you. Why?

Because you, the investor, stop receiving the expected long-term interest payments.
In short: early repayment means lower returns.

3. Interest Rate Sensitivity

Just like bonds, the value of RMBS can go down if interest rates in the market go up. Newer RMBS may offer higher returns, making your existing ones less attractive in comparison.

This isn’t a dealbreaker—but it’s something long-term investors should keep in mind.

4. Limited Liquidity (For Now)

While RMBS are now listed on exchanges like NSE and accessible through RBI Retail Direct, not all RMBS are easy to buy and sell instantly. The market is still developing, and trade volumes may be lower than stocks or regular bonds.

Final Thought

None of these risks are unusual—they exist in most fixed-income products. But RMBS are still new in India, so it’s wise to start small, learn the landscape, and only invest in well-rated, well-structured deals.

The good news? You’re now more informed than 99% of investors who haven’t even heard of RMBS yet.

What RMBS Means for India’s Future

India is on the verge of something big.

With the launch of Residential Mortgage-Backed Securities (RMBS), we’re not just adding a new investment option—we’re unlocking a smarter, faster, and more inclusive way to fund housing for millions of Indians.

In May 2025, when LIC Housing Finance listed India’s first RMBS, it wasn’t just a ₹1,000 crore fundraise—it was the start of a completely new chapter in the way real estate and finance work together.

For banks and housing finance companies, RMBS offer a way to turn long-term home loans into instant capital. That means more home loans, more affordable housing, and faster progress on government goals like Housing for All.

For investors—especially retail investors—it introduces a low-risk, income-generating option that sits neatly between fixed deposits and mutual funds. Backed by real homes and rated by top agencies, RMBS could become the go-to choice for anyone looking for long-term, stable returns.

And for the economy, it creates a stronger, more liquid housing finance system—one that’s more transparent, scalable, and future-ready.

The Bottom Line?

RMBS may be new, but they’re built on something solid—the Indian dream of home ownership.

And now, that dream can benefit not just borrowers—but also smart investors like you.

FAQs: Residential Mortgage-Backed Securities (RMBS) in India

1. What is RMBS in simple terms?

RMBS are investments backed by home loans. You earn income from the EMIs people pay on those loans.

2. Who issues RMBS in India?

Banks and housing finance companies like LIC Housing Finance issue RMBS.

3. Can retail investors invest in RMBS?

Yes, via the RBI Retail Direct platform in the secondary market.

4. How much return can I expect from RMBS?

The first listed RMBS in 2025 offered a 7.26% annual return, paid monthly.

5. Is RMBS investment safe?

Most RMBS are AAA-rated and backed by home loans, but risks like default or prepayment still exist.

6. Where can I invest in RMBS?

Through RBI Retail Direct on the NDS-OM platform, and potentially through mutual funds in the future.

7. What is the minimum amount required?

Minimums vary, but RBI Retail Direct aims to lower entry barriers for individual investors.

8. Are RMBS traded like stocks?

They’re traded in the bond market (not stock exchanges) via platforms like NDS-OM.

9. What is RDCL?

The RMBS Development Company Limited is working to grow India’s RMBS market and make it more investor-friendly.

10. Why is RMBS important for India?

It helps housing finance companies recycle money, supports affordable housing, and gives investors a new source of income.

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