As per statistics, there are nearly 3 crore NRIs and PIOs from India who live in different parts of the world. NRIs are always on the lookout for various investment options in India because of the increasing potential that the Indian economy holds. Many NRI investors believe that investing in their home country can help in wealth creation while also providing a boost to the country’s economy.
As the Indian political and economic environment remains stable, foreign investment continues to flow into the country. The world too keeps a close eye on the movements in the Indian market because of the estimated scope for growth. Here, we will provide an overview and guidance on NRI investments in India, along with discussing some benefits to be availed from the same.
Definition of an NRI
Non Resident Indian (NRI) is an Indian Citizen who resides in India for less than 182 days during the preceding financial year, or
- Who has gone out of India or lives outside India for employment, or
- Who has gone out of India or who lives outside India for business purposes or
- Who has gone out of India or who lives outside India for any other purpose
The qualification is also based on the expectation that the person has no intent or returning to the country for an unknown period.
Best investment options for NRI
NRIs can invest in India using various investment vehicles or instruments. Here are some of the investment options in India available for NRIs:
1. Bank NRE Deposits
Bank NRE deposits are one of the most basic investment options that do not require an investor to possess detailed knowledge of investments. These offer tax-free interest that is also relatively risk free. Investors who have a short to medium time horizon and wish to opt for non-complicated investments can choose NRE deposits. Many NRIs source low-interest loans from local banks and invest the borrowed sum in NRE deposits.
2. Real Estate
Real estate in India is much sought-after by NRIs. This requires a larger investment, and many NRIs have a cash surplus for the same. While this investment form may be tempting for many, it also requires a sound understanding of property rates and expected growth. Many times, NRIs invest in real estate based on very limited information. However, it is important to conduct thorough research on the property and make an informed decision. While considering a real estate investment in India, it makes sense to pay legal fees to a lawyer and get all the documentation verified. Another option is to approach a well-established broker.
At present, NRIs can only invest in residential or commercial real estate since they are not permitted to invest in agricultural properties.
3. Direct Equities
Direct equity investment is a good option for NRI investors, as long as they are comfortable with the risk involved and have basic knowledge of equity investments. This requires proper research and careful selection of equity stocks. It is best to limit the portfolio to basic equity investment instead of making it complicated with multiple risk levels.
NRIs are required to have an NRE/NRO account, Demat account, and a trading account to invest in equities through the Indian stock market.
4. Mutual Funds
Mutual funds are preferred by many NRIs these days, as these are managed by professional fund managers and investors do not have to pick a combination of investments by themselves.
In Mutual funds, there are three choices–Equity mutual funds, Debt Mutual funds and Hybrid funds based on the type of assets they invest in.
Equity mutual funds are mostly for long-term financial goals, as better returns can be expected with such a time. Over 65% of the fund is invested in stocks (equity). Investors pay 15% tax if they sell the investment within the first year. If owned beyond one year, the investment is tax-free. Investors who are comfortable with the volatility in their portfolio and have long-term goals can consider investing in these.
Debt mutual funds are ideal for NRIs who do not want to get into equity risk and want alternatives to bank deposits and bonds. Such funds invested less than 65% in stocks (equity). NRIs have to pay 30% tax if selling it within 3 years of owning it. 20% tax is applicable if remaining invested for over 3 years.
NRIs can easily invest in mutual funds through the Finity app by downloading it and exploring a wide variety of equity and debt mutual fund options. The Finity app is ideal for NRIs who wish to invest as per their risk profile and specific financial goals since the app provide investors with a list of suitable options as per the criteria entered. Especially for first-time investors, it makes sense to consider exploring options on the app that are shortlisted and bundled under various categories by mutual fund experts.
5. Government Securities
Treasury bills or T-bills are government securities that have maturities ranging between 3 and 12 months. T-bills can be bought at RBI auctions. For long-term investments, NRIs can consider the following government securities:
- Fixed rate government bonds–The interest rate in these is fixed.
- Floating rate government bonds–The interest rate can change according to the market movements.
- Capital index bonds (CPI bonds)–The coupon payment on these is adjusted as per the ongoing inflation rates in the market.
NRI investors who have opened a PPF account while still residing in India can continue to invest in it. NRIs cannot open a fresh PPF account. PPF is considered safe as it is government-backed. The current rate of return on PPF investment is 8% per annum, and it comes with a lock-in period of 15 years. The maximum amount allowed to be invested is Rs. 1.5 lakh per year.
NRI’s who are Indian citizens are permitted to invest in NPS. PIO and OCI are not eligible for this investment form. In NPS, 60% of the amount accumulated is received as a lump sum which is entirely tax-exempt, the rest 40% will have to be invested in an annuity that is received over the years. Annuity received is taxable as normal income.
NPS investment is considered safe as it is backed by the Govt of India, but you will have to bear in mind that NPS is also a market-linked investment. Individuals aged between 18 and 60 years can invest in NPS.
Why should NRIs invest in India?
Many NRI investors contemplate investing in India, but usually have two minds about the same. One of the common questions that arise is, does it make sense to live somewhere else and invest money in India? Here are some key points that can help NRIs get a clearer picture and make an informed decision about investment in India:
1. The growth story of Indian economy
India is known to be one of the fastest-growing economies and currently offers political as well as socio-economic stability to investors. NRIs who are looking to diversify their investment portfolio to cover the global markets can consider investing in India. Alongside, if the rupee continues to depreciate, NRIs can make the most of the currency valuations by investing in India.
2. High-Interest Rates
Compared to most developed economies, the interest rate earnings in India are considered good. Many NRI investors invest in India to make the most of the high interest rates as compared to stacking money in foreign bank accounts which may not earn anything.
3. Better understanding of investments in India
Many NRI investors are already familiar with the Indian investment format and even Indian markets. Because of the basic knowledge of investment products and financial ecosystem, it becomes easier for them to consider investing in India.
4. Long term planning
Many NRIs return to India after spending considerable time abroad. A lot of these remain invested in India to finally use all their investments once they are back in India. With investments in India, these individuals find it much easier to liquidate funds once they return and when they need funds.
India continues to attract high FDI as the economic shape of the country promises further growth. NRIs can make the most of this growth story and consider investing in India to avail diverse benefits of the investment forms available in the country.
- Can NRIs invest in shares in India?
NRIs can invest in Indian stocks within the portfolio investment scheme (PIS) of the Reserve Bank of India (RBI). As per this scheme guidelines, an NRI who wants to invest in Indian stocks must open an NRE/NRO account with an RBI-authorised Indian bank. Another requirement is a Demat account. An NRI can transact in stocks in India only through a stock broker.
- Can NRIs buy property in India?
NRIs are permitted to buy immovable property in India. They must ensure that the property does not fall under the titles of agricultural property, farmhouse or plantation. The funds used for purchase of property can be either received through inward remittances or must be held in a non-resident account.
- What is a PIS account for NRI?
PIS or Portfolio Investment Scheme is a scheme launched by the Reserve Bank of India. This scheme enables NRIs to buy and sell shares or convertible debentures of Indian companies through a recognized stock exchange or registered stock broker. Such transactions are routed through an NRI Savings Account held in a designated bank branch.
- Can an NRI have a savings account in India?
As per the Foreign Exchange Management Act (FEMA) guidelines, an NRI is not permitted to have a savings account under his or her name in India. However, NRIs can maintain bank accounts in India as rupee or foreign currency accounts. These can be only with RBI authorised dealers or banks.