The Government is working towards making India more attractive for ease of doing business. The Union Budget 2022-23 remains encouraging for the business and economy, focusing on digitisation, and infrastructural development. Industrial development in India has already been tremendous over the last two decades, which has resulted in more foreign direct investment (FDI). It can be considered the primary reason for the NRIs to look at Indian markets as a viable option for parking their investments.
Who is an NRI?
- An individual should be a Person of Indian Origin (PIO) or an Indian citizen residing overseas.
- If an individual stays in India for more than 182 days in the previous year and 365 days or more in the last four years immediately preceding the previous year, he/she will be categorized as an NRI.
The wide array of investment options may confuse NRIs to invest in their home country. This article offers the best investment options for NRIs to park their hard-earned money by looking at attractive and suitable investments as per your risk profile and financial goals.
1. NRE/NRO/FCNR Fixed Income Investments
Key Highlights:
Fixed Deposits (FDs) are considered the safest investments among the resident Indians as well as NRIs (non-resident Indians) due to negligible default risk and instant liquidity. Leading non-banking financial firms (NBFCs) and banks offer fixed deposits for NRIs. You need your Foreign Currency Non-Resident (FCNR), Non-Resident Ordinary (NRO), or Non-Resident External (NRE) accounts as an NRI investor.
- Open NRE/FCNR account to invest income earned abroad in foreign currency and NRO account to invest income earned in India.
- FD interest amounts on NRE and FCNR FDs are entirely repatriable (principal and interest). NRIs having income in foreign currency outside India and wanting to get it converted to Indian currency can open NRE or FCNR accounts to make fixed deposits.
- NRO FD principal and interest income too can be repatriated with a capping of USD 2 million per person in 13 months time frame.
- If you need to repatriate the deposit maturity proceeds, you can invest with your FCNR account because it will protect you against currency risk, but the interest rate may be lower comparatively. If you want to keep the maturity proceeds in India, you can choose an NRE account.
Why invest in FDs:
– To earn guaranteed returns.
– To achieve long term financial goals without being affected by market fluctuations.
– Flexibility to repatriate the money
– To avoid taxes on interest earned on NRE/FCNR FDs.
2. Stock Investments
Key Highlights:
Individual stocks can also churn out spectacular gains over a long term horizon, say 8- 10 years investment in stocks based on thorough fundamental research can be an ideal wealth creation opportunity.
- NRIs can invest in direct equities through the RBI’s Portfolio Investment Scheme (PINS) with an NRE/NRO bank account and a brokerage account with a stockbroker.
- Stock investments are subject to taxation. You could save on taxes by staying invested in stocks for a long term.- 10% if you sold your stock after a year and 15% if before one year.
Equity investments can generate inflation-beating returns over a period of time. However, even bluechip stocks have some volatility, but NRIs with a high risk appetite and the ability to face stock market volatility can look at direct equities.
Why invest in Direct Equities:
- To make substantially high returns
- Inflation-beating returns
- To save on taxes with long-term investment
3. Equity Mutual Funds
Key Highlights:
- Equity mutual funds spread out the risk in the stock market by investing in diversified stocks investments. Most mutual fund houses let NRIs invest in their schemes with the required paperwork to comply with Foreign Exchange Management Act (FEMA) rules. Foreign Account Tax Compliance Act (FATCA) provisions in the case of the USA and Canada.
- Most NRIs looking for long-term investors prefer Flexi-cap mutual funds to invest across market segments.
- NRIs need NRE, NRO, or FCNR bank accounts to invest in mutual funds.
Why invest in Equity Mutual Funds:
– Easy online investment and switch from one fund to another.
– Systematic and quick transfer or withdrawals online.
– Easy payment without issuing cheques or DDs.
– Tax benefits on long term capital gains
4. National Pension System
- NPS build up a significant retirement corpus with tax-saving benefits. The National Pension Scheme (NPS) in India also allows NRIs to open accounts. It is also considered a safe investment.
- You can create an NPS account with your NRE or NRO accounts. An NRI aged 18 and 60 can invest in NPS. ‘Tier I’ is available for NRIs, but they can not invest in Tier II.
- You have the option to control the diversification of your funds across different asset types by participating actively; otherwise, the assets are diversified automatically as per your age with an auto choice option.
- You can allocate funds towards equity investment, bonds, G-Secs, and other financial instruments.
- NRIs can create an NPS account with their NRO or NRE account with the same bank. You should know that the NPS will pay the pension in Indian currency. The scheme will remain active only if you remain a citizen of India.
Why Invest in NPS Account:
– High returns with market-linked schemes
– Flexible investment options in terms of partial withdrawal
– Option to participate directly or indirectly
– Tax benefit under Section 80CCD (1) up to Rs.1.5 lakhs.
5. Portfolio Investment Scheme (PIS)
PIS is a scheme offered to NRIs by the Reserve Bank of India (RBI) under which they can invest in shares and debentures of Indian Companies on a recognized stock exchange. NRIs can buy or sell shares of Indian companies by routing NRI Bank Savings Account. Similar to mutual funds investing, you need an NRE Saving Account for repatriable based transactions and an NRO account for non-repatriable transactions. NRI investors need to submit the PIS application form.
PIS account is digitally connected with the Demat Account and Trading Account of an NRI. Like a bank account facility for Indian citizens, NRIs can hold a PIS account’s investment amount. The requisite transaction value for share purchase will be debited from the PIS Account, and shares will be credited to the Demat Account.
Why PIS:
– Buy, Sell, Repatriate
– APEX bank – RBI Compliance
– Access to the recognized stock exchange to trade multiple securities
– Smooth Transactions
– Quick access to your account
– Easy to comply with applicable tax laws
Considerations for NRI Investors
- NRI investors cannot engage in intraday stock trading. They can only trade on a delivery basis.
- There is a maximum cap for overall investment in shares and debentures of Indian companies on recognized stock exchanges. RBI permits NRIs to invest only a maximum of 10% of the paid-up capital of a company based in India.
- NRIs are not permitted to invest in every stock and sector. They can not trade in currency derivatives and commodities.
Thus, NRIs can efficiently manage their money in India with these lucrative investment options. The RBI-regulated platform of PIS is opening the door of the Indian market in a regulated framework. Make sure you open an NRI savings account, a demat and a trading account with a reputed stockbroker or investment partner firm. Stay connected with your roots with investment avenues in India.
RURASH is amongst India’s tech driven investment management company, providing financial solutions to augment the client’s wealth and facilitate building a legacy.
For any guidance regarding financial instruments, please reach out to us at invest@rurashfin.com or call us at +91 9820038401.
Also Read: Pros And Cons: Corporate Bonds Traded On Public Exchanges.