NRI Series - Investment options for NRIs in India

Investment options in India for Non-Resident Indians & Persons of Indian Origin

India has become an attractive investment destination for investors all around the globe. The growing popularity of the Indian leadership, improved foreign relations, strong institutional flows, stable and reformist government, multi-year low inflation and interest rates, improving economy and a promising future are few of the key leading factors.  Since last two decades, India has been rapidly developing as an industrial hub. Day after day, our country is attracting more and more foreign direct investment (FDI). Moreover, these days we can see more and more investments coming from the NRIs to the Indian markets. And this is all happening because the Indian economy and government are offering adequate stability and flexibility to the investors. Not only India is conducive for business growth but our economy is also equipped with an extremely profitable financial market.

The year 2018 was not an immeasurable year for investing in the stocks as it witnessed significant bleeding throughout the year. Nonetheless, a similar situation was observed in any other country across the world. However, if you have a look at the year previous to that i.e. 2017, market indicative sources suggested yields around 29% return which was relatively higher than any other economy in the world.

Anyways, financial markets are subject to fluctuations and one must undertake end-to-end research before making an investment decision. Consulting a Chartered Accountant in India is advisable before moving further. 

It is commonly observed that NRIs invest in India to flow money to their families, build a financial asset in the home country, build and attain financial stability, build a corpus for their retirement or simply wealth creation by generating higher returns on investments. The fact remains that NRIs are doing great in their careers and want to invest in their home country. They view India as a great opportunity with good earnings prospect and of course, there is an emotional gratification of staying connected with your country of origin.  However, it is lesser known that there are multitude of investment options for NRIs in India.

One can explore and invest in several investment avenues available in the Indian Markets, best of which are equities, derivatives, exchange traded funds, mutual funds, bonds and government securities, certificate of deposits, fixed deposits, national pension scheme, insurance and real estate.  We shall talk about each of these specifically in this article.

But before we get into the details of the investment avenues one needs to assure they qualify as NRIs.  So one needs to get through the following check list to confirm eligibility:

1.     As per Foreign Exchange Management Act, an Indian citizen is termed as a Non Resident Indian (NRI), if one has either stayed in India for 183 days or less in the last financial year.

2.     If you have already taken a citizenship of a foreign country, you will be classified as a Person of Indian (PIO) origin. But, for all tax and FEMA purposes, NRIs and PIOs are treated exactly the same.

3.     Before you can start investing in India, you will need to get a PAN number and will have to undergo a one-time KYC process. You will have to declare your residency and citizenship details as part of this KYC.

4.     To invest in India as an NRI, you will need to have an NRI bank account. This is the account you will use to do any investment transactions from.  For NRI bank accounts you have three options – NRO, NRE and FCNR.  We shall talk about these type of bank accounts in our next article.

Once you have taken care of the above formalities (i.e. NRI status check, PAN, KYC and Bank account), you are ready for investments.

So now let’s deliberate on the various investment options for NRIs:

Equity

The Portfolio Investment Scheme (PIS) of RBI enables NRIs to invest in the Indian stock markets. Under PIS, NRIs require to get a one-time approval to participate in the Indian stock market. However, NRIs cannot invest over 10% of the paid-up capital of a single company and cannot trade shares on a non-delivery basis. In order to invest in stocks, NRIs require to transact through a stock broking firm for which one needs to open a Demat account with a SEBI registered brokerage firm.  In addition to a demat account to hold shares, NRIs also require a trading account with a stock broking firm.

Derivatives

Besides equity, NRIs can also invest in the Future and Options (F&O) segment of the exchange. In order to participate in the F&O segment, NRIs are required to approach a clearing member who can clear the trades for allotment. Clearing corporation allots unique custodial participant (CP) code to all NRI investors based on the application received from the clearing member. NRIs can trade Derivatives viz. F&O trading through intraday trading, short position, Index trading and leverage.

Exchange Traded Funds (ETF)

Exchange-traded funds aka ETFs are marketable securities owning underlying assets like stock, bonds, oil futures, gold bars, foreign currency, etc. Though it may seem similar to mutual funds, ETFs are different and are commonly traded as stocks on stock exchanges with fluctuating prices based on its buy and sell and the value of the underlying assets. ETFs also have high liquidity and low fees, making it an attractive investment option for NRIs. NRIs require Non PINS account to invest in ETF on Repatriable and Non-Repatriable basis.

Mutual Funds

Mutual funds are one of the most flexible investment options for NRIs. Regardless of one’s investment plan, there is a mutual fund to match the goal requirements. NRIs can invest in mutual funds only using Indian currency and require an NRE or an NRO account to invest in mutual funds. There are no limitations for NRIs investing in mutual funds except for the Canadian and US NRIs. Some strict FATCA rules limit the Canadian and US NRIs to invest in mutual funds only through few AMCs like: SBI mutual fund, Birla Sun Life mutual fund, ICICI Prudential mutual fund, UTI mutual fund, L&T mutual fund, PPFAS mutual fund, Sundaram mutual fund DHFL Pramerica mutual fund.

Bonds and Government Securities

When governments and other companies require funds for their projects or expansion, bonds are issued. Investing in bonds makes the investors a lender and provides a slice of ownership in the company. Investors are also entitled to receive fixed returns on their investment. NRIs can freely invest in Bonds and government securities through NRE and NRO accounts. However, repatriation benefits are applicable for NRE accounts which have completed 3 years, while benefits of maturity credited to the NRO account cannot be repatriated.

Certificate of Deposit

Certificate of Deposit (CD) is money market instruments issued either in demat form or promissory notes by banks and financial institutions. These are similar to fixed deposits but have higher liquidity and can easily transferable.  The certificates are generally issued at a discount rate and have effectively higher returns as compared to other bank investments. NRIs can invest in Certificate of Deposits through NRE accounts on a repatriable basis.

National Pension Scheme

National Pension Scheme is a retirement savings scheme of the Indian Government and a good investment alternative. Under this scheme, investors are allotted unique Permanent Retirement Account Number. It is a cost-effective and tax-efficient scheme with flexibility in investment amount and regularity. It also offers the option to choose from fixed income options, government securities or equity-related investments. NPS offers good returns on investment and a regular income along with a corpus for retirement. NRIs who hold Indian Citizenship and are between 18 to 60 years of age can invest in NPS through NRE/NRO account.

Insurance

Insurance has been one the most preferred mode of investments for Indians. NRIs can invest and buy insurances in India. With evolving time, several insurances are designed especially for NRIs. These insurances cover death, disability, disease and also offer lump sum benefits. Different mode of premium payment for insurance is available for NRIs. One can opt for direct remittance through banking channels, remittances through postal channels, etc.

Real Estate

Real estate is one the most traditional and all-time favourite modes of investments for Indians. It is also a popular choice amongst NRIs as NRI investment in property is allowed, provides emotional security to have a property in the homeland and most importantly because India is a developing nation with soaring property prices. NRIs can invest in both residential and commercial properties with no restrictions on amount or size of the property. However, NRIs are not permitted to buy agricultural lands, farmhouse or plantations.

Fixed Deposit

Investing in Fixed Deposit is not only popular among the residents in India but also an attractive investment scheme for the NRIs. Being an NRI, you can open your FD with your NRE, NRO, or FCNR Account.  Interest rate applicable to your FD depends on the tenure of your deposit. In general, you can expect to earn interest between 6 to 7.5% on your account balance as per current trends. Further, if you are a senior citizen, you would get the privilege of earning an extra interest of one percent. Moreover, this investment option is suitable for risk averse investors as FD is a comparatively safer form of investment.

Public Provident Fund

As an NRI, you would be sad to know that you are NOT eligible to open a PPF account in India. Anyways, if you have already opened a PPF account in India while you were a resident, then you are allowed to operate your existing PPF account until 15 years with no option for extension.

Our closing thoughts

In this article, we tried to cover some of the best investment options for NRIs that they can consider if they are planning to invest their savings in India from abroad.

If you are a profit-loving investor and looking for a long term capital appreciation, you can choose to invest in the Indian stocks or mutual funds. In case you are having a huge corpus, high risk appetite, and high return expectation, you can invest in the real estate sector. Besides, you can invest in a Fixed Deposits if you have a short investment horizon and looking for a guaranteed return. Lastly, you can opt for investing in PPF or NPS if you are willing to earn tax efficient returns and at the same time not bothered to park your money for a longer period of time.

Overall, on the basis of your priorities, budget and expected returns, you can make a choice of any investing scheme that suits you in the most effective manner. While making any investment in a financial instrument, ensure that you have gone through the relevant documents and understood the salient features of the same.

For any queries on this article, feel free to write to us on gaurav@gjmco.in

Thanks & Best regards,

Knowledge Base Team

GJM & Co.

Chartered Accountants

www.gjmco.in