After speaking about the best investments for Canadian and British expats, this article will discuss investment opportunities for non resident Indians (NRIs).
If you have any questions or are interested in expat-specific investing, you can use the chat function below or contact me using this form.
Introduction:
NRI – ‘NRIs’, also known as the ‘Non-Resident Indians’, are the people having Indian origin but are living somewhere else other than India. NRIs are technically Indian citizens. NRIs are the people who possess an Indian passport but have temporarily emigrated to any other country, whatever the purpose might be.
According to a report from the Ministry of External Affairs in India, there are approximately 28 million estimated NRIs known to be residing outside of India. India is also known to be having the most immigrants to other countries with the people/immigrants ranging up to 17.5 million.
According to ‘Section 6 of the Income Tax Act’, any Indian citizen is considered as a non-resident depending on the tax status of that specific person. If a person has not resided in India for more than a specific period of time, which is at least 245 days over 4 years in a financial year of 365 days or at least 60 days in a consecutive year, then that person is considered a non-resident.
For the person who does not qualify for the above-mentioned residence criteria, that person is taxed differently, as per the non-resident/NRI status. The taxes differ for non-residents and residents.
There are some other categories of Indians who slightly differ but are almost the same as the NRIs. They are people with ‘PIO (Person of Indian Origin) status’ and ‘OCI (Overseas Citizenship of India) status’.
PIO – A Person OF Indian Origin is a foreign individual (exceptions in case of people from Pakistan, China, Iran, Bhutan, Sri Lanka, Afghanistan, Bangladesh, or Nepal). These should qualify for the following eligibility criteria, which is:
- Person who at any time used to have an Indian Passport possessed by them.
- Person who has a lineage of Indian origin, which means their grandparents were the residents of India as defined by the Government of India Act, 1935, and other territories that have become part of India after that. They shouldn’t be a resident of the above-mentioned countries.
- Person who is a spouse of an Indian Resident or a PIO.
OCI – A pseudo citizenship scheme was established, which is known as Overseas Citizenship of India or OCI. Although this was considered to be dual citizenship, this scheme didn’t provide the individuals with the full features of dual citizenship. The restrictions applicable to the OCI are voting rights, the right to apply for government jobs, etc. Some people might mistake the OCI status for Indian citizenship but from a constitutional perspective, it cannot be considered as Indian citizenship.
Investment Opportunities for NRIs:
Over the recent years, India is known to have a great amount of development technically as well as industrially. Due to this, many foreign investors seem to be interested in making investments in India. Indian Government, trying to take the business to the next level is offering various types of investment options available for the individuals.
Great improvement in foreign relations, institutional flows, stability in the government, low inflation, etc., also help in making India as an attractive country having many investment opportunities. India is attracting a lot of Foreign Direct Investments (FDIs). There are many opportunities available for the NRIs in India, out of which a few are highly beneficial for them.
In this article, let us have a look at the most advantageous investment opportunities available to the NRIs.
Fixed Deposits:
Fixed Deposit is a type of financial instrument, which is provided by the banks, that offer a higher amount of interest to an individual when compared to that of the regular savings account. Fixed Deposits usually may or may not require the creation of a separate account.
In most cases, the banks also offer some additional features to the FD holders such as loans against the FD certificates at low-interest rates. Generally, the interest rates of Fixed Deposit vary between 4% to 7.50% depending on various features. The tenure of Fixed Deposit ranges in-between as low as 7 days to as high as 10 years. In India, Investments are very safe and covered by the ‘Deposit Insurance and Credit Guarantee Corporation’. Although all the investment amounts cannot be covered, DICGC guarantees an amount of 1,00,000 rupees per each depositor per each bank. Income tax and wealth tax benefits are also included.
Fixed deposits are not only well known among the resident people of India, but they are also quite popular among the Non-resident Indians. FDs are safe, not only because they have a cover of 1,00,000 rupees, banks usually don’t default on the Fixed Deposits.
The rate of interest received by the individuals usually depends on the bank selected, the amount of deposit made, and the tenure of the deposit. Higher interests are offered to the people who are either making a huge deposit or the people who are making a deposit for a long tenure.
Senior Citizens are offered with more interest than normal people.
The Non-Resident Indians can make a Fixed Deposit in two types of bank accounts. They are ‘NRO account’ and ‘NRE account’.
NRO Account:
An NRO account (Non-Resident Ordinary account) is usually an account for an NRI in order to handle/manage the money earned from his/her sources in India. The interest earned on an NRO account is subjected to taxes.
According to the Income Tax Act 1961, the income earned with the help of an NRO account is usually taxable at 30%. The money within an NRO account can be repatriated. The interest can be repatriated but the principle has to follow the set limits in order to get repatriated (up to 1 million dollars in a financial year). Sometimes the income earned might also be subjected to the tax in the NRI’s country of residence as well. If that country has a Double Taxation Avoidance Agreement (DTAA), then there can be an advantageous tax rate or a refund.
Joint NRO accounts can be opened by an NRI with Indian citizens, or an NRI with other NRIs. Individuals are able to deposit the money in foreign currency as well as Indian currency. However, they can only be able to withdraw only in Indian currency. There are no risks involved in currency conversion.
NRE Account:
An NRE account (Non-Resident External account) is an account used by an NRI in order to handle their income that has been transferred from the foreign sources into India. The interest earned on an NRE account is free from taxes. Not only the interest, but the deposited money is also tax-free.
Unlike the NRO account, there are no limits for repatriating income. NRIs can be able to repatriate the income, wither interest, or the principal amount easily. There can be no applicable tax for the people living in countries free Income Tax such as UAE, Saudi Arabia, Kuwait, Qatar, Oman, etc. whereas, countries like UK, USA, Singapore might levy taxes based on the DTAA.
A joint NRE account, unlike the NRO account, cannot be opened by the Indian citizens. NRIs can only be able to open a joint NRE account with another NRI.
Individuals can only be able to deposit money in foreign currency and withdraw the money only in the form of Indian currency. There is a slight risk involved when it comes to currency conversion rates. The interest in an NRE account generally ranges between 4.90% and 7.75%.
Given below is a list of some popular banks in India and their interest rates based on the tenure of the deposit.
| Bank Name | Type of account | Tenure of the Deposit | Interest Rates |
| SBI Bank | NRE account | 1 – 2 years | 6.70% |
| 3 – 5 years | 6.80% | ||
| NRO account | 46 – 179 days | 6.25% | |
| 3 – 5 years | 6.80% | ||
| HDFC Bank | NRE account | 1 year 17 days – 2 years | 7.30% |
| 3 years 1 day – 5 years | 7.25% | ||
| NRO account | 46 – 60 days | 6.25% | |
| 3 years 1 day – 5 years | 7.25% | ||
| ICICI Bank | NRE account | 1 year – 389 days | 6.90% |
| 3 years 1 day – 5 years | 7.25% | ||
| NRO account | 46 – 60 days | 6.00% | |
| 3 years 1 day – 5 years | 7.25% |
That being said, If an NRI is willing to make a deposit of the income earned in India and manage it in India itself, then an NRO account can be considered as the best available option for them. NRE account is favorable for the people willing to transfer their income earned through foreign resources and manage it here.
Equity:
‘Equity’ is the value of shares in a company owned by an individual. In simple terms, Equity is nothing but the amount that can be received by a shareholder if the company had liquidated all the assets belonging to them and paid off the debts.
For example, if a person owns 50% equity, then they would be paid 50% of the money if all the assets belonging to that specific company were made into the general form of money and all the debts were paid off.
Equities usually represent the shareholder’s stake in that particular company. It calculated on the basis of the company’s total assets minus the liabilities. People who are aggressive at investing and can manage with some risk involved in the investments, Equity can be a good option.
In order to invest in the Equities in Indian Stock Market, an NRI is required with an account with the Portfolio Investment Scheme known as the PIS Account. This PIS Account can be linked to a Demat Account, which can be opened with the help of any registered stockbroker in India. NRIs require approval to create a PIS Account. NRIs must definitely acquire an NRE/NRO account, Demat account, and a Trading account in order to make an investment in the Indian Stock Market.
The NRIs cannot invest more than 10% of the capital that has already been paid. They also cannot trade on a non-delivery basis. The returns acquired from equity investments are considered to be high over the long term with volatility. Equities are known to beat inflation of a country and make the investments grow.
The risk involved in Equity investments is also high when compared to that of FDs and PPF of any financial instrument related to the stock market. For the Equity investments that have been sold under a period of 1 year of the purchase, the tax applicable is 15%. When they are sold after 1 year, the tax is 10%. NRIs cannot make day trading, instead, they can only be able to sell the stocks that have been obtained by them.
Public Provident Fund:
The Public Provident Fund (PPF) is a financial instrument for savings and tax savings for the people in India. It was introduced first in the year 1968 by the National Savings Institute of the Ministry of Finance. The primary objective of a PPF is to mobilize the little amount of savings by giving access to an investment with tax benefits and substantial returns.
If an NRI creates a PPF while they were residing in India, they can be able to fund their account and continue with that. As an NRI, they can’t be able to directly open a PPF account. Since PPFs are backed up by the government, they are considered as a safe investment option available to the investors. The current rate of returns offered to an individual on a PPF investment is 8%.
There is a lock-in period for PPFs, which is 15 years and any person can only be able to make an investment up to Rs 1.5 lakhs a year. Under section 80C, PPFs are subjected to tax deductions.
National Pension Scheme:
Another government-backed scheme that is considered to be a safe investment option is the National Pension Scheme (NPS). National Pension Scheme is a retirement savings scheme by the Indian Government. Just like the PPFs, NPS also includes tax benefits. When the amount goes through the given time of maturity/completing the lock-in period, the amount is tax-free.
While making an investment in NPS, individuals are provided with a unique Permanent Retirement Account Number. People can choose the asset classes to provide funds with a wide range of available options such as fixed income options, government securities, equity-related investments, etc. If a person does not choose the asset classes, automatic distribution among the asset classes takes place based on the age of the person.
NPS accounts can be opened by NRIs who have Indian citizenship and are between an age group of 18 to 60 years. NRE/NRO accounts can be used to invest in an NPS account. People can also open an eNPS account if they have access to a PAN card or an Aadhar Card.
Mutual Funds:
A Mutual Fund is a professionally managed investment fund, where the money is pooled from many investors and used in order to purchase securities. The investors in mutual funds can either be retail or institutional in nature. Mutual Funds can be considered as one of the flexible investment options available for making an investment in India by the NRIs.
NRIs from the United States or Canada might not be able to invest in the mutual funds as the NRIs from the other parts of the world. There are some restrictions for the NRIs from Canada or the USA, which means they can only be able to buy from a selected range of Mutual Fund Schemes.
Mutual Funds involve moderate risk i.e. they are not as risky as the stock market investments or not safe as the bank deposits. NRIs can only make an investment in Mutual Funds only with the help of Indian currency and they need an NRE/NRO account for that.
Based on the risk profile of the investor, NRIs can be able to invest in equity funds, debt funds, liquid funds, balanced funds, MIPs, etc.
There are no limitations for the NRIs to make an investment in mutual funds other than the NRIs from Canada and the USA. The NRIs from Canada or US can only be able to invest in mutual funds with the help of 8 asset management companies namely, 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, and DHFL Pramerica Mutual Fund.
The returns acquired within a time period of 3 years on non-equity funds are considered to be short-term capital gains and are taxed at 30%. Whereas, after 3 years they are considered as long-term gains and taxed at 20%.
Taxes applicable for the NRIs are the same as the resident Indians. However, the taxes for NRIs are deductible at source (TDS) by the respective mutual fund companies.
Real Estate:
Known to be one of the most preferred modes of investments by Indians, Real Estate is also one of the best available investment options for NRIs. Real Estate has improved a lot over the past few years and the prices went very high. NRIs can buy properties such as houses, apartments, etc., in India and can collect rent from those properties. It also creates an emotional satisfaction for the NRIs to have a property in their motherland.
NRIs are able to buy any type of commercial or residential property in India without having any type of restrictions. However, they are not allowed to buy agricultural lands, farmhouses, plantations, etc.
Similar to the capital gains from mutual funds, Properties in India are also taxable at 30% for a sale within 2 years of purchase and 20% for the sale after 2 years. In both cases, tax is deductible at source.
Making an investment in Real Estate in India can be quite advantageous to the NRIs as the prices are expected to hike over the next few years due to the rapid development in India.
ETFs:
ETFs (Exchange Traded Funds) are the financial instruments having underlying assets such as stocks, bonds, futures, precious metals, currencies, etc. Even though ETFs might appear similar to the mutual funds, they are usually traded in the form of stocks on stock exchanges. The prices of ETFs usually fluctuate depending on the buy or sell value of the underlying assets.
ETFs have a higher amount of liquidity and low fees involved making them an advantageous investment option for individuals (especially NRIs). NRIs need to have a Non-PINS account in order to make an investment in ETFs based on their requirement for repatriable and non-repatriable services.
Bonds and Government Securities:
Bonds are the financial instruments issued by the governments or companies when they require funds for the successful completion or running or expansion of their current projects. This makes the investor become a lender and henceforth they obtain a part of the ownership of that respective project/company. Fixed returns are also entitled to the investor on their investment.
Investments can be made by NRIs into Bonds or Government Securities with the help of NRO/NRE accounts. However, there is an advantage having an NRE account here, which is, after completing the period of maturity which is 3 years the benefits acquired with the help of these can be repatriated. In the case of NRO accounts, they cannot be repatriated.
Certificate of Deposit:
The financial instruments issued by the banks or financial institutions in the form of Demat forms or promissory notes are known as Certificates of Deposit. Certificate of Deposit is similar to a fixed deposit but it can be easily transferred and have a higher amount of liquidity.
The investments can be made by NRIs in Certificate of Deposits with the help of an NRE account, which are repatriable. The certificates are issued to an investor at discounted rates but are considered to have higher benefits when compared to that of Bank Investments.
Other Honorable Mentions:
Derivatives – Similar to the equity, NRIs can also be able to invest in the Futures and Options in the stock market. NRIs can trade in Futures and Options segment by approaching a clearing member (who is able to clear trades for allotment) who allots a Custodial Participant (CP) code depending on the application obtained from the clearing member.
Derivatives (F&O segment) can be traded by the NRIs through intraday trading, leverage, short position, and index trading.
Insurance – Many types of insurances are available to individuals, especially NRIs. Mostly the insurances cover death, disability, accidents, etc. The insurance amount can be remitted directly through banking, postal services, etc.
Some other forms of investments that are available for the NRI investors include ‘Portfolio Management Services (PMS)’, ‘Foreign Currency Non-Resident Account (FCNR Account)’, ‘National Savings Certificate (NSC)’, ‘Non-Convertable Debentures or Company Fixed Deposits’, etc. But some of these involve risk or not that much beneficial to the investors.
What’s the bottom Line?
Usually, NRIs often don’t take necessary precautions or have little knowledge about the investment options and end up making investments that aren’t highly beneficial to them.
By looking at all the above-mentioned options available and planning a perfect investment strategy, any person can be able to create a perfect investment career being an NRI.
Although it might seem easy, it is better to consult a professional financial advisor (like us) in order to get the necessary help and more information about these investment opportunities.
Very informative and genuinely enriching for NRI investors