Living out of India has its advantages. NRI earns in dollars and works with the most developed economies of the world. Some NRIs wonder whether living and earning out of India debars them from investing in India. And if not what are the best options available for them to invest in India and subsequently secure their future.
India is a developing economy and has a lot of options for investing and securing the future for its citizens as well as the non-citizens who live abroad. Yes, you heard that right, even NRIs have a lot of options for investment.
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Who is an NRI (Non-Resident Indian)?
In common language, NRI stands for Non-Resident Indian. Or, to say any person who is a citizen of India but lives overseas.
- An individual who has been in India for a minimum period of 245 days in the preceding financial year.
- Or, has lived in India for a period of 60 days in that specific year.
- Or, has been in India in a stretch of 365 days for the past four years is considered a resident of India.
Any other person failing to meet any of the conditions above stated is a Non-Resident of India.
In other words, NRI is an Indian citizen living overseas for a total period of 183 days in a financial year i.e, from April 1st to March 31st . People living and working out of India are often curious about investing in India. But with little understanding of the market and options available discourages them from investing.
Here we will discuss the best investment options for NRIs in India. Prior to that, it is important to know why NRI investment in India is significant.
Why should an NRI invest in India?
To invest is to allocate your money so as to procure future benefits or to say a return in financial terms. Investing ensures current and future long term financial stability. Since life is very unpredictable, every individual believes in securing their future financially. The best way of doing that is by investing in the right sector.
Let us see why is it important for an NRI to invest
It is very important to plan your retirement now. The sooner you plan your retirement the better it is for a secured future. To lead a comfortable secured and easy retirement life one has to create a financial shield that would fund it all later. The total amount of investment you create now will govern your old age.
All this while you have been working hard to earn money, now is the time for your hard-earned money to work for you. And the best way to do this is to invest. With time, the returns from the investment multiply.
Investors usually expect high returns by risking their investments. A low-risk investment will fetch low return likewise a high-risk investment will fetch high returns. It is always important to use your money wisely so as to incur a good return in the future.
Financial assets get their value from a contractual right or ownership claim. These can be bank deposits, bonds, or stocks. Investing is the best means of growing one’s financial assets.
These assets can also be used for future security. Choosing the best investment option in India will lead to the rapid growth of these financial assets.
Different NRI Investment Options in India 2020
People around the world invest for securing their finances. People look for better investment options so as to gain higher returns in the future. Many NRIs working overseas are unaware of the fact that they can still invest their money in India even when they aren’t physically residing in India.
There are a whole lot of profitable options for NRI investment in India. NRIs can safely and securely invest in India. Rest assured of a happy and hassle-free future.
Here is a list of 8 such profitable investment options for NRIs in India
Fixed Deposit Bank Accounts
This is probably the most common and easy investment option for an NRI. This service is usually offered by both banking and non-banking agencies. Here you can deposit money for a fixed period of time for a higher rate of interest than any other savings accounts.
The only drawback here being that one can only withdraw the money on its maturity. However, in certain circumstances, premature withdrawal is available at a penalty.
NRI investment in India in Fixed Deposit accounts has been categorized under 3 main types. These are:
Non-Resident External Account (NRE)
These accounts are usually maintained in Indian rupees where you invest your income earned outside India. Also, these accounts may be maintained in the form of savings, current, recurring or FD. The interest rates of these accounts vary from bank to bank and also depends upon the tenure of the deposit. Also, the interest earned under these accounts is non-taxable in India.
Some of the benefits of an NRE account are:
- Easy money transfer
- Low balance required
- Anytime account access
- Beneficial interest rates
- Low cost
- Joint holding of the account
Non-Resident Ordinary Account (NRO)
These accounts are also savings accounts. In which you can manage and maintain your income earned in India. Such as rent from a property owned by you, pension, dividends, interests, etc. These accounts can be maintained in the form of savings, recurring, or current. But unlike NRE accounts, the interests earned under these accounts are taxable at 30%.
Foreign Currency Non-resident (FCNR)
These accounts are the best investment option for NRIs who want to retain their money in foreign currency. Moreover, the principal amount and the interest earned in these accounts are fully repatriable.
The risk of foreign currency exchange is zero with a guaranteed higher return. Additionally, the interest rate is determined by the currency you deposit in the account. Different currencies will yield different interest rates.
Mutual funds are the best investment options for NRI investors. They have a more professional approach than any other investment plans. These are open-ended investments that are managed by professionals. They pool in money from many investors to purchase securities.
Mutual funds can be a higher risk investment option but the returns are generally greater than in any other investment plans.
NRIs can invest in a Mutual Fund by opening an NRE, NRO, or FCNR account in India.
The following are some of the agencies accepting investments by NRI in India:
- SBI Mutual Fund
- Birla Sun Life Mutual Fund
- DHFL Pramerica Mutual Fund
- ICICI Prudential Mutual Fund
- UTI Mutual Fund
- L&T Mutual Fund
- PPFAS Mutual Fund
- Sundaram Mutual Fund
This is the most preferred investment option for most NRIs. Of late, India has become one of the most appealing investment destinations drawing global attention. NRIs often feel secured and emotionally attached to owning a property in their motherland.
With increasing prices of both commercial and residential properties in India, this has become one of the best investment options for NRI.
NRIs are barred from purchasing an Agricultural land and plantations in India. Unless otherwise the same is deemed to have been inherited or gifted.
NRIs need to be careful about the payment method they use for buying or selling a property in India. All cash transactions have been blocked for NRIs. Hence, all these transactions are to be done through bank transfer from their NRO, NRE, or FCNR accounts.
An NRI investor has the option of investing in the Indian stock market. This investment can be made through the Portfolio Investment Scheme (PIS). Hence, an NRI should first open an NRE or NRO bank account. Furthermore, they need to open a Demat, and trading account to deal in the equity market in India.
Bonds and Non-convertible Debentures
NCD is another option for NRIs who are looking for investments apart from mutual funds or the stock market. These are long term investments offered by companies. Usually in the form of fixed deposits. This offers a higher return in comparison to FD, in general. Also, these investments can be made by an NRI through NRE and NRO bank accounts.
Bonds issued in India are either Public Sector Undertakings (PSU) Bonds or Perpetual Bonds. PSU bonds have a fixed maturity date. Perpetual bonds on the other hand have no specific maturity date. Hence these can be treated as equity and not as debt. These bonds are considered as a viable money-raising solution during the time of economic crises.
NRIs also have the option of investing in Government Securities. The Reserve Bank of India (RBI) has initiated a separate medium known as the “Fully Accessible Route” (FAR). So as to enable NRIs to invest in specific Government securities (g-Sec) effective from April 1st, 2020.
Government securities are generally considered a low-risk investment. Here the government issues a bond or a debt obligation with a promise to repay upon its maturity. These either could be long term or short term investment. The federal government issues treasury bills which are short term investments. The maturity period of these securities ranges from a few days to 52 weeks. NRIs are paid at face value upon selling these securities. Hence, allowing investors to make their profit.
Some of the long term government securities are:
- Fixed-rate government bonds where the interest rate is fixed.
- Floating rate government bonds where the interest rate changes as per the market conditions.
- Capital index bonds (CPI) where the base payment rises and falls with the consumer Price Index.
Certificate of Deposits (CD)
NRIs can opt for a CD as an investment. Indian banks issue a CD for a period of 7 days up to 1 year. These are basically short term investments for retail investors. CDs are negotiable instruments. Also, they guarantee repayment of the principal amount along with the fixed returns.
NPS is a retirement plan. Anyone who is under the age of 18 to 60 years of age can put their money in NPS. The maturity benefits from an NPS are taxable. Also, the funds are taxable on withdrawal. Following are the two kinds of accounts under NPS with its own set rules.
Tier-1 Account – It is a basic pension account with certain limitations on withdrawal. The withdrawal of only 20% can be made before attaining the age of 60 years. The rest of the 80% of the investment has to be used for buying an annuity from an approved life insurer. Also, even after attaining the retirement age, only 60% of the contribution can be withdrawn. The remaining 40% is again used to buy an annuity.
Tier-2 Account – Unlike the tier-1 accounts, tier-2 accounts are more flexible and there is no limit on withdrawal. PFRDA appoints fund managers to manage these accounts. The account is usually managed by the fund managers appointed by PFRDA. Also, one has the freedom of opting for a fund manager at the time of opening the account.
Can NRI open and maintain Bank accounts in India?
As per the RBI’s guidelines, the following bank accounts can be opened and maintained by an NRI:
- Non-resident External Account (NRE)
- Non-resident Ordinary Account (NRO)
- Foreign Currency Non-resident Account (FCNR)
- Special Non-resident Rupee Account (SNRR)
India is one of the fastest developing countries of the world attracting a lot of NRIs to invest, for a secure future. This is also one of the best ways for NRIs to stay connected with their motherland and help the Indian economy. A wise decision now will not only help you secure your future but also ensure handsome returns.