As an NRI are you thinking to explore some good investment options? If yes, you are at the right place. Here, you shall get to know details on the Best Investments for NRIs looking to invest in India. You shall also get familiar with popular investment alternatives to support you in your long term financial planning.
NRI Investments in India: A Glimpse
Every year thousands of people migrate from India. Some for the purpose of education and some for doing their business. While many go just for doing offshore jobs and earn in foreign currency. With passage of time, a number of them tend to settle in foreign countries, later on followed by their families as well.
Such people of Indian origin or the ones who become Non Resident Indians or NRIs over the period of time are the direct source of cash inflow in India. Over the past few decades, NRIs have shown great interest in parking their funds in Indian Investments. The government has also simplified the rules and regulations to encourage NRI Investments in order to boost the economic growth of the country.
Further, the falling Indian rupee means you as an NRI will get more returns from your Investments in India. Also, the money that Indians working abroad send to their families in India will fetch more rupees on conversion due to the depreciating Indian currency. This in itself attracts more NRIs to put their funds in India depending upon their savings and risk appetite.
But, before discussing about the various investment options for NRIs, you should firstly be clear about the exact meaning of a Non Resident Indian or NRI.
NRI or Non Resident Indian – Meaning
As per Foreign Exchange Management Act, a person is a Resident of India if he stays for 183 days or more in India during the preceding financial year starting from 1st April to 31st March. But, if he does not fulfil this condition i.e. he is in India for less than 183 days, he shall be considered as a Non Resident.
As per the Income Tax act 1961, a person is a Resident of India if :
- He has stayed 182 days or more in India in the current financial year or
- He stayed in India for 60 days or more in the previous financial year and 365 days or more in the preceding 4 years (The 4 years shall be counted from the year before the financial year which is into consideration).
So, if you satisfy any of the above conditions, then you become an Ordinary Resident. In case you don’t satisfy them, then you shall be considered as a Non Resident Indian.
Just check for the above conditions to confirm whether you are an NRI or not.
If yes, now you wonder how to invest your money in India. Firstly, you need to be clear about your financial goals as to why you want to invest:
- For building a corpus for retirement and having financial security.
- Utilise your savings to invest and get the best possible returns.
- To flow the money back to your relatives in your own country.
- For establishing financial assets in your home country.
In fact, there are numerous opportunities available for NRIs wherein you can convert foreign currency into Indian assets and long term investments.
7 Best NRI Investment Options in India:
1. Bank Fixed Deposits:
This is the most common and one of the favourite mode of investing by NRIs. Being an NRI, you can open a Fixed deposit account in an Indian bank authorised to deal in foreign exchange. In simple words, an NRI can open a term deposit through 3 different types of accounts in India i.e. NRE, NRO and FCNR accounts. Banks usually provide attractive and high interest rates on NRI Fixed Deposits.
Following are the 3 accounts that can be opened by an NRI:
(i) NRE or Non Resident External Accounts:
This can be in the form of savings, current, recurring or fixed deposits and can be maintained in Indian rupees. So, in order to have NRI deposits you need to have a NRE account first. NRI Deposits can earn an interest ranging from 7 to 9% per annum.
Moreover,the principal and interest earned on NRE Deposits is not taxable in India. This is best suited for NRIs who want to transfer their foreign income to Indian accounts. Both principal and accrued interest can be easily repatriated easily anytime.
(ii) NRO or Non Resident Ordinary Accounts:
NRO Account is mainly to manage the Indian income of NRIs that can be in any form like rent, dividend or pension received in India. But, NRO accounts offer a limited repatriation per year i.e. presently capped at $1 million. NRO Fixed deposits are taxable as per Indian laws @30% approximately. In case of NRO FD only interest accrued can be repatriated.
(iii) FCNR or Foreign Currency Non Resident:
NRIs can maintain the account in foreign currency in FCNR Fixed Deposit. It helps you to avoid the fluctuations in the exchange rate since the deposit is in foreign currency. Interest earned is tax free and fully repatriable.
If you are a newly landed immigrant, you can have a look at Newcomers Bank Accounts in Canada.
2. Mutual funds:
To invest in Mutual funds, an NRI needs to have any of the 3 bank accounts i.e. NRE/NRO or FCNR amount. The investment has to be made in Indian currency and not in foreign currency. Further, the investment amount can be directly debited from NRE or NRO accounts.
Also, NRI has to give a rupee cheque or draft from his NRE/NRO Account. At redemption, the amount shall be paid in Indian currency either through cheque or directly credited to investor account.
However, some countries don’t allow NRIs to invest in mutual funds in India.
To have detailed analysis, you can refer: How can NRI invest in Mutual Funds in India? US/Canada based and Other NRIs
The tax liabilities for NRIs are the same as that of a Resident, the only difference being that in case of NRIs, tax is deducted at source(TDS).
|Equity Mutual funds||Debt Funds|
|Short Term Capital Gain (STCG)||Taxable @ 15%||Taxable as per Income tax slab rate|
|Long Term Capital Gain (LTCG)||Taxable @ 10% where LTCG>1 lakh (No indexation benefit)||Taxable @ 10% without indexation or 20% with indexation|
3. Direct Equity:
NRIs are also eligible to invest directly in the stock market under the Portfolio Investment scheme(PINS) of RBI. An NRI has to take permission under PINS scheme for purchasing and selling shares in India. However, the maximum NRI Investment cannot go beyond 10% of paid up capital of the Indian company.
NRIs need to open a Demat account and brokerage account with SEBI registered brokerage firm. An NRI can transact through a stock broker only.
So,being an NRI if you want to trade in equity market, you need to have:
- A bank account – NRE or NRO Account.
- A trading account – with a SEBI authrorised broker.
- A Demat account – To hold shares.
An approval under the PIS is required for trading in the stock market. Only one PIS Account per individual is allowed. Also, NRIs cannot trade in all the Indian stocks. RBI publishes the list of stocks that are eligible for NRIs.
But, NRIs are not allowed to:
- Do intraday trading or
- Short selling in India.
Hence, NRIs can only trade on delivery basis. NRIs need to own the stocks before they want to sell it.
You may also like: Best Demat and Trading Account in India!
4. Real estate sector:
Investing in the real estate sector is a traditional and an all time favourite investment method for most of the NRIs. Indians leave their country and become NRIs. But, having a home or property back in your own country is considered as a valuable possession. In addition to financial appreciation, it gives you a sense of emotional security as well. Real estate sector is considered as a lucrative investment option for NRIs.
As an NRI, you can purchase both residential and commercial properties. There is no restriction on the no. of properties owned. But, you cannot buy agricultural lands, farm house or plantations. Although, you can have ownership of agricultural land through inheritance or gift.
However, selling of property comes with some restrictions by FEMA (Foreign Exchange Management Act), especially in case of repatriation transactions. So, you need to plan things well in advance by hiring a professional who will guide you with all the legal documentation and procedures at the time of purchase/sale.
If you are planning to invest in a home just have a look at our popular blog post: 5 Smart tips for Home Buyers!
5. Investment in Bonds/Government Securities:
The Government and companies require money from time to time for various projects or their expansion. Hence, bonds are issued for borrowing money. If you invest in bonds, you will be considered as a lender unlike equity where you have an equity stake in the company.
Being an NRI, you have the freedom to invest in bonds and government securities. Investors get fixed returns on such bonds issued by companies or government institutions. If purchase is done through NRE/FCNR accounts, the proceeds are easily repatriable to the country where you live.
6. Certificate of Deposits:
NRIs also have the option to subscribe to Certificate of Deposits but on a repatriable basis. Certificate of Deposits are non negotiable money market instruments issued in demat form or in the form of promissory notes. CDs yield higher rate of interest as compared to bank deposits. There maturity period ranges from 7 days to 1 year and are best suited for people having short term financial goals.
7. National Pension scheme (NPS):
This is also a good investment alternative. But, NRIs who are Indian citizens can contribute to NPS. Once you give up your Indian citizenship, the account is closed. NRI who are Indian citizens between the age of 18 to 65 years can contribute by fund transfers from their NRE/NRO accounts.
So, Investment in NPS can be made by :
- Citizen of India living in India or
- NRI who holds an Indian citizenship.
PIO and OCI are not eligible for opening NPS account.
You get to choose from a variety of funds like fixed income options, government securities or equity related investments.
Under NPS or National Pension Scheme 2 types of Pension Accounts are there :
(i) Tier I Account:
You contribute to NPS account with certain restrictions on withdrawal. So, this is basically a non-withdrawable account till retirement.
(ii) Tier II Account:
You can withdraw from Pension account any time without any restriction. Kindly note that Tier II account may not be available to NRIs.
Deposit in NPS yields fair amount of returns and enables you to build a good post retirement corpus. But, you can withdraw only 60% at maturity and the rest 40% has to be converted to annuity.
A Tax deduction Under Section 80C is available upto a maximum of Rs.1.5 lakhs. Also, an additional deduction of Rs.50000 is available under section 80 CCD(1B) for contribution towards NPS.
NRI Investing in India: Important Points to Consider
If you are an NRI investing in India, here is a list of crucial points to be considered while investing:
- Being an NRI, you are liable to pay taxes on the income you have earned in India.
- Taxable income can be in the form of salary earned in India, capital gain on sale of investments like property, shares, securities etc.
- Tax is deducted at source or TDS on payments to Non resident Indians or NRIs. e.g. If NRI sells property in India, the buyer shall deduct tax at source while making payment. Similarly, banks also deduct tax wherever applicable like Interest earned in NRO Account.
- Certain mutual fund houses may not accept deposits from NRIs based in USA/Canada. You should check with respective fund houses/asset management companies before investing.
- NRIs can avoid double taxation i.e. same income shall not be taxed in two different countries. For this, you need to check for the DTAA or Double Taxation Avoidance Agreement in between the countries.
- NRIs are not allowed to make certain investments like Investment in PPF, NSC, Post office Saving scheme, Senior citizen scheme.
As an NRI, you may also like to know Which income of NRI is taxable in India and How?
Go ahead and evaluate the various Investment opportunities available and select the one that best suits you. Before investing, do check the Investment rules and tax regulations of the country where you live.
Feel free to leave your valuable comments and any other suggestions that might be helpful to someone.