A Guide to NRI Investment in India
Credit: North Loop
Who is an NRI?
An NRI is any Indian citizen or persons of Indian origin who has moved abroad for the purpose of education, to conduct business, or for the purpose of employment for an indefinite period. If the citizen spends less than 182 days in India, he/she is considered to be an NRI.
Why invest in India?
Investments in India are a popular choice for the foreign diaspora for a number of reasons-
1. India as a growing country has attracted several investments due to its thriving economy. Due to this, a wide variety of corporations get established in India and these companies go public offering promising returns to key stakeholders.
2. Benefit of rupee value appreciation- The foreign diaspora makes investment decisions based on the promising prospect of rupee value appreciation, which potentially provides high returns on investments.
3. One can build financial assets by investing in India, which can indirectly help investors build wealth and have a safety net to tread through financial emergencies. These assets also can be used as collateral for sanctioning of secured loans.
1. India as a growing country has attracted several investments due to its thriving economy. Due to this, a wide variety of corporations get established in India and these companies go public offering promising returns to key stakeholders.
2. Benefit of rupee value appreciation- The foreign diaspora makes investment decisions based on the promising prospect of rupee value appreciation, which potentially provides high returns on investments.
3. One can build financial assets by investing in India, which can indirectly help investors build wealth and have a safety net to tread through financial emergencies. These assets also can be used as collateral for sanctioning of secured loans.
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What are the best investment options for NRIs in India?
NRIs have a wide range of investment options in India, however, we will only be covering some of the best investment options-
1. Mutual Funds- These are market-linked instruments which have a high risk exposure and offer higher returns than other non-market instruments. Mutual funds are large pools of money of investors and this pool of money is managed by expert fund managers in a bid to increase their returns by purchasing securities. Mutual funds are regulated by the Securities and Exchange Board of India (SEBI) and offer very high security.
In order to invest in Mutual Funds in India, an investor needs to open either a Non-resident External Rupee Account (NRE Account), Non-resident Ordinary Rupee Account (NRO Account), or a Foreign Currency Non-Resident Account (FCNR account) and these accounts can be opened with any of the national banks in India with basic documentation. You would also have to invest in mutual funds in the Indian currency and the returns earned will be in INR too.
2. Fixed Deposits- These are the type of investment instruments offered by some of the major nationalized banks in India which offer returns on deposits. An NRI would be required to deposit a stipulated amount in the FD for a fixed period of time (known as the lock-in period) and in return the bank offers a higher interest rate than a regular savings account. The lock-in period can range from 1 year and go all the way up to 10 years and the interest rates can vary depending on the tenure. Being non-market linked, fixed deposits offer lower returns than market-linked investment instruments.
Types of Fixed Deposit accounts for NRIs-
a. Non-resident External Rupee Account- This is a type of account wherein NRIs can deposit any foreign revenue earned in the form of INR in these accounts. The interest earned on these accounts are generally higher than what is earned on savings accounts. NRE accounts generally earn an interest rate of 6% - 7% on these deposits.
b. Non-resident Ordinary Rupee Account- This is a type of account wherein NRIs can deposit any domestic Indian revenue, such as rent, in these accounts. All deposits need to be made in INR only and the interest earned on these accounts are taxed at 30%.
c. Foreign Currency Non-resident account- This is a type of account wherein foreign currencies are stored in the form of GBP, USD, Euro, SGD, etc. These accounts attract an interest rate of 2-3% and can help mitigate the loss incurred during currency fluctuations.
3. Stocks- Investments in stocks can be made by NRIs through a Portfolio Investment Scheme (PIS), a subset of the Reserve Bank of India (RBI). Investments can be made in stocks only when an NRI has a dedicated NRE/NRO account, a DEMAT account and has a SEBI trading account with a registered broker.
4. Real Estate- Investing in Real Estate in India can have its own set of perks as one can benefit from a booming real estate market. Investors can buy a commercial or residential property and rent/lease it out and earn an income in INR. However, the NRI would be required to possess an NRE/NRO/FCNR account to buy and sell a property.
Rental income, short term capital gains (upon sale of the property within 2 years of purchase) and long term capital gains (upon sale of property after 2 years) are all taxable as per applicable tax rates.
1. Mutual Funds- These are market-linked instruments which have a high risk exposure and offer higher returns than other non-market instruments. Mutual funds are large pools of money of investors and this pool of money is managed by expert fund managers in a bid to increase their returns by purchasing securities. Mutual funds are regulated by the Securities and Exchange Board of India (SEBI) and offer very high security.
In order to invest in Mutual Funds in India, an investor needs to open either a Non-resident External Rupee Account (NRE Account), Non-resident Ordinary Rupee Account (NRO Account), or a Foreign Currency Non-Resident Account (FCNR account) and these accounts can be opened with any of the national banks in India with basic documentation. You would also have to invest in mutual funds in the Indian currency and the returns earned will be in INR too.
2. Fixed Deposits- These are the type of investment instruments offered by some of the major nationalized banks in India which offer returns on deposits. An NRI would be required to deposit a stipulated amount in the FD for a fixed period of time (known as the lock-in period) and in return the bank offers a higher interest rate than a regular savings account. The lock-in period can range from 1 year and go all the way up to 10 years and the interest rates can vary depending on the tenure. Being non-market linked, fixed deposits offer lower returns than market-linked investment instruments.
Types of Fixed Deposit accounts for NRIs-
a. Non-resident External Rupee Account- This is a type of account wherein NRIs can deposit any foreign revenue earned in the form of INR in these accounts. The interest earned on these accounts are generally higher than what is earned on savings accounts. NRE accounts generally earn an interest rate of 6% - 7% on these deposits.
b. Non-resident Ordinary Rupee Account- This is a type of account wherein NRIs can deposit any domestic Indian revenue, such as rent, in these accounts. All deposits need to be made in INR only and the interest earned on these accounts are taxed at 30%.
c. Foreign Currency Non-resident account- This is a type of account wherein foreign currencies are stored in the form of GBP, USD, Euro, SGD, etc. These accounts attract an interest rate of 2-3% and can help mitigate the loss incurred during currency fluctuations.
3. Stocks- Investments in stocks can be made by NRIs through a Portfolio Investment Scheme (PIS), a subset of the Reserve Bank of India (RBI). Investments can be made in stocks only when an NRI has a dedicated NRE/NRO account, a DEMAT account and has a SEBI trading account with a registered broker.
4. Real Estate- Investing in Real Estate in India can have its own set of perks as one can benefit from a booming real estate market. Investors can buy a commercial or residential property and rent/lease it out and earn an income in INR. However, the NRI would be required to possess an NRE/NRO/FCNR account to buy and sell a property.
Rental income, short term capital gains (upon sale of the property within 2 years of purchase) and long term capital gains (upon sale of property after 2 years) are all taxable as per applicable tax rates.
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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.
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