Best Investment Options for NRIs in India

Did you know that as an NRI, you can make an NRI investment in India? NRI investment options in India are almost the same as those available to resident Indians. However, you have to follow the guidelines set by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA) and the Securities and Exchange Board of India (SEBI). You also have to be mindful of and follow the laws of your country of residence.

First, let’s ascertain the criteria that qualify you as an NRI for income tax purposes.

Who‍ is a Non-Resident Indian (NRI)?

An NRI is a citizen of India who currently does not reside within India. For tax purposes, however, you are considered an NRI if you have spent more than 182 days residing outside of India within a financial year. India’s financial year goes from the 1st of April to the 31st of March.

If you are an NRI as per this criteria for one or several financial years, you do not have to pay income tax in India for those financial years. With these technicalities noted, let’s look at your investment options in India as an NRI.

NRI‍ investment options

The options suitable for you to invest in India as an NRI can be the following:

  • Fixed Deposits or FDs
  • National Pension Scheme or NPS
  • Equity
  • Mutual funds
  • Real estate
  • Public Provident Fund or PPF
  • Bonds and Non-Convertible Debentures (NCDs)
  • Pre-IPO investments

Let’s look at the investment options in detail.

1. Fixed Deposits or FDs

Fixed Deposits, or FDs, are among the safer ways to invest in India for an NRI. This investment can help you earn fixed interest income.

You can choose from these three types of NRI Fixed Deposit Accounts:

Non-Resident External (NRE) Fixed Deposit – You can open an NRE FD account todeposit your earnings in foreign currency converted to Indian rupees. The principal and the interest can be fully repatriated later to your country of residence if you wish.

Non-Resident Ordinary (NRO) Fixed Deposit – You may open an NRO Fixed Depositaccount to maintain and save your income generated in India in Indian Rupees. This income may be from dividends, rental income, pension and similar sources. However, Interest earned is taxable in India at 30% along with surcharge and cess.

Foreign Currency Non-Resident (Bank) [FCNR(B)] Fixed Deposit – An FCNR (B) fixeddeposit account allows you to deposit funds in a foreign currency in India. An FCNR account can help you to tide over currency exchange rate fluctuations. FCNR FD interest rates vary based on the currency that it is held in. The interest earned is not taxable in India, and both the principal amount and the interest can be completely repatriated to your country of residence later if you choose to do so.

2. National Pension Scheme or NPS

The NPS is floated by the government of India and allows NRIs to invest in equity funds, debt funds or a combination of both.

NPS is available to individuals between the age of 18 years and 60 years. You will need documents like a PAN card and an Aadhaar card, a Non-Resident External (NRE) account or a Non-Resident Ordinary (NRO) account.

3. Equity

Non-Resident Indians may directly invest in the Indian stock market under the Portfolio Investment Scheme (PIS) of the RBI.

NRIs need to have the following accounts for equity investments:

  • Non-Resident External (NRE) Account
  • Non-Resident Ordinary (NRO) Account
  • NRI Demat Account
  • NRI Trading Account with a registered broker

Please note that Income from dividends and capital gains earned by NRIs from stocks and equity-oriented mutual funds schemes are taxed in India.

4. Mutual Funds

Can NRIs invest in mutual funds in India? Yes, like resident Indians, NRIs too can invest in mutual funds in India. However, only a few Mutual fund houses offer mutual funds to NRIs based in the USA and Canada. NRIs residing in the USA and Canada must comply with the Fair and Accurate Credit Transactions Act (FACTA) requirements to invest in mutual funds in India.

5. Real Estate

Real estate is considered a stable investment with handsome returns over the long term. NRIs may purchase residential and commercial real estate properties in India. However, you cannot buy agricultural land.

NRIs may use the following bank accounts for property transactions in India:

  • Non-Resident External Account
  • Non-Resident Ordinary Account
  • Foreign Currency Non-Resident Account

6. Public Provident Fund or PPF

You can continue with your PPF account, which you opened as a resident Indian. However, if you don’t have a PPF account, you can’t apply for it as an NRI. Also, note that you cannot extend your PPF account after the maturity period of 15 years.

7. Bonds and Non-Convertible Debentures (NCDs)

As an NRI, you may invest in bonds and NCDs in India. You can also invest in government securities in the form of NRI bonds without any ceiling limit in certain categories.

Here are the three main categories of bonds you can invest in:

Public Sector Unit or PSU Bonds

  • As a holder of PSU bonds, you lend money to a PSU company, and it promises to pay interest on the maturity date. The interest rate on the PSU bond is a factor of the creditworthiness of the issuing PSU company.
  • The interest earned on PSU bonds is tax-free U/S 10 (15) (IV) (h). If you sell them after owning them for over three years, the investment is taxed at 20 per cent. NRIs can also claim tax deductions if they invest in capital gain bonds by REC and NHAI under section 54 EC.

Non-Convertible Debentures (NCD)

  • You can invest in non-convertible debentures (NCDs), considered a secure and long-term investment. They are secured by the company’s assets.

Perpetual Bonds

  • Perpetual bonds do not have a fixed maturity date. The issuing company promises to pay the investor a set amount of returns per year.

8. Pre-IPO investment

You can buy and sell shares of a company that is yet to be listed on a public exchange in the pre-IPO market. Private companies sell their shares through an investment firm that facilitates the transaction. The units will be deposited in your NRI Demat account when you buy unlisted shares.

Pre-IPO shares may have a massive upside if the company does well. However, these investments are riskier than listed shares because this market is less regulated than the regular equity market.

To sum it up

You can access almost all the investment options available to a resident investor as an NRI. You can pick and choose from your options across asset classes. It is crucial for you to consider your investment plan while investing. This can ensure that your investments are in sync with your financial goals and risk profile.

Frequently Asked Questions

1) Who regulates NRI Investments in India?

NRI investment in India is regulated by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA) and the Securities and Exchange Board of India (SEBI).

2) Can NRIs invest in India with just a PAN Card?

NRIs can invest in a mutual fund with a PAN card, NRE/NRO account and a demat account. However, the documents required differ as per the asset class.

3) In which funds can NRIs invest?

NRIs can invest across mutual funds in India. However, for NRIs residing in the USA and Canada, it is mandatory to comply with the Fair and Accurate Credit Transactions Act requirements to invest in mutual funds in India.

Is your compliance complete? Once complete, you can invest in any mutual fund scheme.


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