NRI Investment in India
Though settled in foreign countries, NRIs are always looking for the best investment options in India for NRIs. But, due to lack of knowledge about investment, more often than not they have to put their investment plans on hold.
Over the past few years, NRIs have shown keen interest in making investments in India. In addition to that, the Indian government has also eased the rules and regulations for the NRIs to encourage them towards making investments in India which will eventually enhance the economic growth of the country.
Best Investment Options for NRIs
There are number of investment options available for NRIs to help them convert their foreign currency into Indian assets. Few of them are:
Fixed deposit accounts in Indian banks is one of the favorite investment options in India for NRIs. Non-residents can open a fixed deposit account in an Indian bank which is authorized to deal in foreign exchange. The Indian banks, in general, offer a higher interest rate on NRI fixed deposit accounts.
There are 3 different types of accounts through which they can invest their money as term deposit. Here’s a look into these 3 types of accounts:
NRO (Non-Resident Ordinary Account): This NRO accounts, in general, manage the NRIs’ Indian income such as dividend, pension and rent. However, this account has a limit set to the money an NRI can deposit in a particular year. Currently, the limit set is of $1 million. It’s important to understand that NRO account is taxable with 9% tax levied on the interest earned.
NRE (Non-Resident External accounts): This account can be maintained in the form of current, savings and fixed deposit. This account is popular among the NRIs because they can easily transfer their foreign income to the Indian account. The minimum deposit amount in this account is as low as Rs 10,000.
Furthermore, this account offers 3.50% & 4% if the end of the day balance is less than Rs 50 lacs & equal to or more than Rs 50 lakhs, respectively. The best thing about an NRE account is that the principal and interest rate in this account is not taxable.. They can easily repatriate the principal and interest anytime.
FCNR (Foreign Currency Non-Resident): This account allows the NRIs to maintain a fixed deposit account for NRIs in foreign currency. The NRIs have a choice of 9 currencies available to deposit the amount including USD, GBP, JPY, EUR, CAD, SGD, AUD, HKD and CHF.
FCNR is a TDS exempt account. Besides that, it also helps the NRIs who want to avoid the swing in the exchange rate as the deposit is in currency of foreign nationals.
Mutual funds are one of the most popular options among NRIs. To invest in mutual funds, NRIs need to have either of NRO, NRE or FCNR accounts. Here, it’s important to realize that the mutual funds investment need to be made in Indian currency.
The NRIs needs to give draft or rupee cheque from their NRO/NRE account. At the time of redemption, they should pay the amount in Indian currency by directly crediting it to the investor account or by cheque.
Apart from the above-mentioned options, NRIs also have an option to make investments under the Portfolio Investment Scheme (PINS) of RBI in the stock market. Before investing in the stock market, they need to seek permission for selling and purchasing shares under PINS scheme. The maximum investment should not reach beyond 10% of paid-up capital of the company which is based in India.
The NRIs should be able to fulfil the following criteria to invest in Direct Equity:
- A brokerage account with a brokerage firm (SEBI registered)
- Demat account for holding shares
- A bank account (NRO or NRE account)
The NRIs are not eligible to trade in all the Indian stocks. They are only allowed to trade on the basis of delivery.
Real Estate sector is considered as another popular and best investment options in India for NRIs. From the economic point of view, this is one of the most lucrative investment options available for NRIs. Under this option, the NRIs can buy commercial as well as residential properties. However, they cannot invest in agricultural land and farmhouse.
Similarly, there are cases where NRIs would have got possession or ownership of land through gift or inheritance. There could be certain obligations that they need to take care of when they want to sell their property. They can face the FEMA (Foreign Exchange Management Act) in case of repatriation or transaction.
At the time of sale or purchase, they need to keep these laws in their mind. They also need to pay attention towards hiring an expert legal adviser who can give them sound advice on purchasing and selling of the properties or while making the documentation of the properties.
Certificate of Deposits are instruments of non-negotiable money market. This instrument is issued in the demat form. The best thing about Certificate of Deposits is that they possess higher rate of interest as compared to deposits in bank. The maturity period of these deposits varies from 7 days to 1 year. This option is suitable for those who have short term financial goals to fulfill.
Even though this investment option is not considered as a traditional one for NRIs, it is still important for both the NRIs as well as the company & the government of India. The government or the company requires money from time to time for expansion of its projects. For this reason, they issue bonds to borrow money from interested investors. When someone invests in bond, s/he is considered as a “lender”.
NRIs gte to achieve appropriate returns through such bonds. If they purchase through FCNR/NRE account, the amount will easily be transferred to the country where they are residing.
NPS account is another best investment option for NRIs in India. NRIs who are citizens of India and belong to an age group of 18 to 65 years can make contributions towards this fund through their NRO/NRE accounts. Once they give up their Indian citizenship, the account will be closed.
There are two types of NPS accounts.
- Tier 1 Account: This account works as a non-withdrawal account until the subscriber retires.
- Tier 2 Account: There is no such withdrawal restriction on this account. The citizens can withdraw amount from this account at any time they want. However, this account is not available to the NRIs.
Aforementioned are few of the best investment options available or NRIs in India that can help the NRIs accumulate a good amount of wealth by strategically investing in these channels. Just make sure that you know of all the taxation obligations and repatriation restrictions before making the final decision.