Are you living in abroad and want to settle in India? If yes you must have thought of investing in India. Even if you have not decided where to settle you can invest in India as an NRI. Now what is the definition of NRI. Non Resident Indian (NRI) means an individual who resides outside India. He is either a citizen of India or a overseas citizen of India (OCI) cardholder. More precisely, if an individual spends in India for atleast 182 days in a year.
NRIs are earning a handsome money but most of them are not very concious about investing. The primary reason is that they are unaware of so many rules and regulations of dos and donts in India as an NRI. NRIs normally stick to conventional NRI fixed deposits and real estate.
We will explore here various best investment options for NRIs in India. Before that we will discuss why NRIs should invest even if they are earning much compare to their Indian counterparts.
Retirement Plan:
Saving for retirement is the biggest requirement for any individual. Everybody should invest for their retired life when there will be no income but expenditure will increase. So it is better to be start preparation now for the retired life by way of saving money steadily and continuously. Also many people including NRIs wish for early retirement. In this case, the saving for retirement is more important as the target to achieve the goal reduces. Moreover, NRIs have improved their standard of living in most cases which increases the expenditure.
Lifestyle Improvement:
Mostly NRIs have a better lifestyle abroad than India. It is easyto improve lifestyle but difficult to reduce when you are coming to India. As a result a significant part remains with you which needs more exxpenses to maintain though some persons can actually manage to reduce. This improved lifestyle cost requires a significant in income too which may not satisfied most of the cases. Hence investment in good times for a better future can ease your life in tougher times.
Second Source of Income:
Many NRIs aspire about second source of income in India. The source of income can be generated trough building financial assets which will act as raw material in money making buiness. Here you have to build a sizable amount of corpus which gives you regular interests, dividends etc to maintain your expenses. If this passive income can makes the family expenses the expectation of future income is significantly reduced. You can take decisions about life quite easily.
We understand that saving money for a secured future is important. Now let’s dive into the options available for NRIs to invest in India.
1. Fixed Deposits
Fixed Deposits are the most popular and widely used investment options for NRIs. Every NRI is having two types bank accounts. NRE (Non resident External) and NRO (Non resident ordinary) account. Primarily NRIs have NRE and NRO savings account. You can create NRI fixed deposits or NRO fixed deposits with respect to the savings accounts. You can transfer foreign currency (USD, AED, JPY etc.) to INR and save in NRE account. The NRE account s are flexible in terms of transfer limit. You can transfer any amount of money to or from NRE account. Also the interest from NRE account is not taxable.
NRO account has almost the same features of a savings account for resident individuals. You can transfer your existing savings account to NRO account and open a NRE account linking to the same customer ID before leaving from India. You can also open account at the Indian banks presents in that country. If you have any income in India such as rents, interest earned etc. it should be deposited to NRO account.
NRIs can choose to open fixed deposits in NRE account or NRO account. But NRE account has some advantage as the interest earned from NRE accounts are tax free and also have marginal higher interest rate compare to NRO accounts.
2. Mutual Funds
NRIs can invest in Indian mutual funds. The mutual funds are primarily of two types. Equity and Debt based. If you want to know all types of mutual funds you can read this detailed article on types of mutual funds. You can invest in mutual funds through your NRE or NRO account. All the mutual funds have the facilities of online investing. There are other common platforms such as CAMS, KARVY, MF Utility etc.through which you can start investing.
There are some restrictions for US and Canada based NRIs who are under FATCA regulations which says the asset management companies (AMC) or fund houses have to report the transactions of US citizens including NRIs to US government. Some AMCs started to accept fund from US and Canada complying the FATCA regulation.
- Aditya Birla Sun Life Mutual Fund
- L&T Mutual Fund
- SBI Mutual Fund
- UTI Mutual Fund
- ICICI Prudential Mutual Fund
- DHFL Pramerica Mutual Fund
- Sundaram Mutual Fund
- PPFAS Mutual Fund
The investment in mutual fund attracts risk and risk reduces when you can asses your risk properly. There is capital gain tax for investing in mutual funds and the tax depends on the types of mutual fund such as equity or debt. Read what is the capital gain tax and how it is calculated for mutual funds and the tricks to lower the burden.
3. Direct Equity
Investing in direct equity is respectively complicated. NRIs do need to open a PIS (Portfolio Investment Scheme) account along with NRE and NRO account with the bank. NRIs can approach their bank toopen a PIS account while opening their NRE and NRO account. A Demat and trading account is also required for investing in the equity market. It is better to select a single bank which are having all the facilities of opening a PIS account with NRE/ NRO savings account and Demat & Trading account.
Only one PIS account can be opened in India and it can be a joint account. There are various regulations on investing in Indian companies for non residents such as holding maximum amount of a company’s stock etc. You can repatriate your income to foreign currency if you have PIS account. The txation is simillar to resident accounts on capital gain of equities. There are some limitations in terms of intrday trading and short selling of stocks.
Read more on capital gains tax on equity.
If you have an existing account as a resident before becoming an NRI, you can continue the investment with existing Demat and Trading account on a non reptriable basis which means you cannot take profit out to foreign currency.
4. Real Estate
Real estate is another very popular investment allocation for NRIs because of the appreciation over the last decade. Moreover you can get the steady rental income when you are in aborad. NRIs can only invest in residential and commercial property. They cannot invest in agricultural lands. Recently the capital appreciation is not making enough money for the investors. The rental income is also getting affected because of excess capacity in the market.
Though it is a proven choice for many investors I personally don’t prefer to real estates as it is a very poor liquidity. You cannot sell the property even if you switch your asset allocation to other categories. Rent management is also difficult sitting outside India. If you have some relatives who can take care of your property yo can allocate a portion of your investment in real estate.
5. Bonds, NCDs and Government Securities
Bonds and Non convertible debentures (NCDs) can be agood investment option but less known. It is widely under penetrated because of its unpopularity or vice versa. Government securities are backed by government assets and carry a very less risk.
Bonds are usually issued by Public Sector Units(PSUs) such as IOC, ONGC, GAIL, Coal India,NTPC etc. As these bonds are backed by PSUs the dafulats risk is less. Bonds issued by Private sector scompanies are also available when they raise the capital via bonds. NRIs do need to assess the credit worthiness of the company while subscribing these bonds.
My preference is to go for companies with sound finance and good quality assets. The interest rate is marginally less for sound companies with good history of credit and repayment. Even if the interest rate is lower my preference to go for that because I believe in preserve of capital is necessary.
The bonds and NCDs are taxable if the return is creduted to NRO account and taxfree if you invest with NRE account.
6. National Pension Scheme (NPS)
NPS is pension plan who wants to retire in India and they need money in INR. This is a retirement savings plan regulated by PFRDA which is a government body. NRIs can start an NPS account and start investing with their NRE/ NRO account. NPS fund invest you rmoney in three different asset classes – equity, corporate bonds and government securities.
You can choose your allocation among these according to the rules or you may set as default which is as per the rules of PFRDA. It has two sub accounts called as Tire-I and Tier-II. You can withdraw 60% of your corpus as lump sum at the age of 60 years. The other 40% of corpus is to be used for buying an annuity plan which covers your monthly pension. The 60 % lump sum withdrawal is now tax free.
I have written an article sometimes back regarding investment to NPS and whether you should invest or not? The article may help you to decide.
7. FCNR Deposits
FCNR (Foreign Currency Non resident) deposits are kind of fixed deposits but not in INR. It is available in USD, EUR etc. according to the banks.NRIs may consider these deposits when they have a lump sum planned expense in foreign currency.
This deposits will actually helping to hedge the INR in terms of USD. If you think USD will strengthen compare to INR in future you may go for FCNR deposits. The interest rate is very low compare to INR. The income from FCNR deposits are non taxable by Government of India and you can access the money any time.
P.S: NRIs cannot invest in Post office small savings scheme such as PPF, NSC, SCSS etc. However, A person who has opened a PPF account during his/her residency in India can continue the investment till maturity.
Conclusion:
The above investment options are quite handful to NRI Investors who want to innvest in India. As I said the fixed deposits in NRE account is the simplest bet considering its simplicity in tax rules. But if you want to build a capital assets which gives you higher return you have to look into the equity.
You can invest in equity directly or via mutual funds. Real estates also can be explored depending on the situations. The asset allocation is to be based on one’s risk appetite, financial liabilities and different other factors . One can consider the NRE fixed deposits for short term investments and instant liquidity.
However, you can invest based on your risk profile and expectations. You can consult your investment advisor for a detailed plan.
