Masala bonds are Indian Rupees (INR) denominated debt instruments that are issued outside India. Since these bonds are issued outside of India, they are settled in US dollar (USD). The unique feature of masala bonds is that the currency risk is borne by the bond investor, not the bond issuer. This means that a masala bond investor’s return will be lower/higher than the stated yield if the INR depreciates/appreciates against the US dollar (USD) during the lifetime of the bond.