What are the best investment options in India for NRIs

What are the best investment options in India for NRIs

International Investment

Before you proceed to analyze the best investment options in India for NRIs, you must be clear in your conception of the terminologies is respect of NRIs, who they actually are and the facilities extended to them under FEMA.

Definition of NRI:

A Non Resident Indian (NRI) is an Indian Citizen who is resident abroad for an indefinite period, the minimum being 183 days in a Financial Year ie, from 1st April to 31st March of next year.  He may be residing on foreign soil for employment, business, any vocation, assignment with any Foreign Government / Agency; officials on deputation or student qualify to be treated as Non Resident Indians (NRI) and is eligible for all the facilities available to NRIs under FEMA.

Definition of PIO:

A person of Indian origin is someone who is a citizen of any country other than Bangladesh and Pakistan, if:

  • At any time he or she had an Indian passport, or
  • Either of her/his parents or any of her/his grand-parents was anIndiancitizen, under Citizenship Act 1955 or by virtue of Constitution of India.
  • A person is a spouse of an Indian Citizen or a person referred to in sub clause (i) or (ii) above

Definition of Returning Indian:

Those Indians who were earlier non-residents and are now returning for stayingpermanently are Returning Indians. They are permitted to open Resident Foreign Currency (RFC) account.

Investment opportunities:

The investment options available to NRIs are varied and attractive. Since you earn in foreign currency, your investment in India is sought after and are lured with generous offers. While the avenues are many, there are some basic requirements that you are obliged to fulfill. As an NRI, you have ample opportunities to convert your foreign currency into Indian investments and assets. But at the outset, you need to be clear about your financial goals. They could be:

  • To build a corpus to ensure financial security.
  • To earn the best possible returns.
  • To plough the money back to your relatives in the country.
  • To build financial assets in your native country.

Once you have settled your priorities and goals, you can go ahead with a systematic approach towards fulfilling them.

Deposit Accounts with Banks:

All banks in India offer the NRIs the facility of opening accounts with them. They could Savings, Current or Term Deposit Accounts embellished with attractive features. These accounts are classified as NRE, NRO, FCNR or RFC accounts.

  • Savings Accounts:

There are three types of account in this category.

  • NRE (Non Resident External) Account: You can open this INR account in your name and also chose a joint account holder if you so desire. The money can be fully repatriated and the earning from this account is not taxable in India.
  • NRO (Non Resident Ordinary) Account: You can open this INR account in your name and also chose a joint account holder if you so desire. The money can be repatriated to the tune of 1 million USD and the earning from this account is taxable in India.
  • RFC (Resident Foreign Currency) Account: Returning Indians are eligible to open this account which is maintained in US Dollar (USD) or Great Britain Pound (GBP) only. The money can be repatriated and it is tax free in India.

 

  • Current Accounts:

There are two types of account in this category.

  • NRE (Non Resident External) Account: You can open this INR account in your name and also chose a joint account holder if you so desire. The money can be fully repatriated and the earning from this account is not taxable in India.
  • NRO (Non Resident Ordinary) Account: You can open this INR account in your name and also chose a joint account holder if you so desire. The money can be repatriated to the tune of 1 million USD and the earning from this account is taxable in India.

 

  • Term Deposit Accounts:

There are four types of account in this category.

  • NRE (Non Resident External) Fixed Deposit Account: You can open this INR account in your name and also chose a joint account holder if you so desire. The money can be fully repatriated and the earning from this account is not taxable in India.
  • NRO (Non Resident Ordinary) Fixed Deposit Account: You can open this INR account in your name and also chose a joint account holder if you so desire. The principal can be repatriated to the tune of 1 million USD and the earning from this account is taxable in India.
  • FCNR (Foreign Currency Non Resident) Fixed Deposit Account: NRIs Indians are eligible to open this account which is maintained in US Dollar (USD) or Great Britain Pound (GBP), Canadian Dollar (CAD) , Australian Dollar (AUD) and Japanese Yen (JPY) only. The money can be repatriated and earning is tax free in India.
  • RFC (Resident Foreign Currency) Fixed Deposit Account: Returning Indians are eligible to open this account which is maintained in US Dollar (USD) or Great Britain Pound (GBP) only. The money can be repatriated and earning from this account is tax free in India.

Mutual Funds:

It is essential to have any of the above three bank accounts in the name of NRI eg. NRE, NRO or FCNR account to enable you to invest in Mutual Funds.  The investment has to be routed through any of the named accounts compulsorily in INR. The redemption proceeds are also routed to these accounts. Tax is in the form of TDS unlike other resident Indians.  The magnitude of the portfolio of Mutual Funds to invest requires threadbare analysis. However, the multiplicity of offers is attractive enough to consider as worthwhile investment.

Direct Equity:

You as a NRI may consider investing in the Stock market in India. However, it involves certain riders:

  • You are governed by the Portfolio Investment Scheme (PINS) of RBI. Anapproval is therefore required from RBI to purchase and sell shares in India.
  • You are prohibited from investing more than 10% of paid up capital of the Indian company.
  • You will need a Demat Account to hold the shares.
  • You will need a Trading Account with SEBI authorized brokerage firm.
  • Other perquisite to have a NRE / NRO Bank Account.
  • You can executeonly through a stock broker.
  • You are restricted to trade in the list of permitted stocks for NRIs as published by RBI.
  • You are prohibited from intraday or short selling in India.
  • You can only trade on delivery basis.
  • You need to own the stocks before you want to sell it.

Real Estate:

Investing in the real estate sector has been a favorite investment zone for many NRIs. Owning a property in you native country provides you with an emotional as well as financial security because of the assured appreciation in prices. To most this turns out to be  lucrative. The choice of investment could be in both residential and commercial properties. However, disposing and repatriation of funds is governed by FEMA Regulations. In the event of your planning to do so, it is advisable to seek the help of a professional with fool proof documentation.

Bonds and Government Securities:

The Government and many commercial Companies announce expansion projects from time to time for which they are required to raise funds. Bonds and Securities are issued for borrowing money to implement these projects. You may consider investing in these bonds and government securities, where you acquire the role of a lender and receive fixed returns. If you route your transaction through NRE / NRO bank accounts, you can easily repatriate the funds.

Certificate of Deposits:

You have the option to subscribe to Certificates of Deposits. These are non-negotiable instruments of the money market issued in Demat form or as Promissory Notes. Typically, the range of maturity of a CD varies from 7 days to 1 year. You can meet your short term financial goal with CDs as it yields better returns than Bank Deposits.

National Pension Scheme:

Another alternative opportunity for investment in India is the National Pension Scheme (NPS). As long as you are an Indian Citizen, you can transfer fund from your NRE and NRO Bank Account between the ages of 18 to 65 years. It offers you the choice to invest in a variety of funds including equity. You have to choose between two types of Pension Accounts:

  • Tier I Account: It does not allow withdrawals till retirement
  • Tier II Account: You can withdraw from the account without restrictions.

With fair returns, you can build a healthy retirement corpus with NPS.

Check List for Investment by NRIs in India:

As an informed NRI investor, you are expected to evaluate the various investment options available and select the best matches your goals and preferences. You are also expected to check the investment rules and tax regulations of your adopted country thoroughly. The important bullet points to consider are:

  • Tax liabilities in the form of earnings on investments in India eg. Property, stocks, securities etc.
  • TDS liabilities on earnings on investment in India like interest earned in NRO Account.
  • Check Double Taxation Avoidance Agreement between your adopted country and India.
  • You are not to invest in PPF, Post Office Saving Scheme, NSC, Senior Citizen Scheme etc.

Bottom Line:

The Indian economy is one of the fastest growing economies in the world. India is considered a safe, secure and dependable destination for foreign investments. As a knowledgeable NRI, you have a sterling role to play in the development of India. The plethora of avenues and opportunities because of the liquidity,safety, and steady returns it offers, beckons you to invest.