Some of the best avenues for NRI investments in India are listed below. There is usually a lot of paperwork and compliance requirements for NRIs (non resident Indians). But India offers great returns on investment compared to most countries in the world.
Therefore, most NRIs prefer to invest in India. Most NRIs would also like to settle in India after their retirement. This is also one of the major reasons why they would prefer to invest in their home country.
Mutual Funds
NRIs can invest in mutual funds through NRE (non resident external) or NRO (non resident ordinary) bank account. There is a lot of compliance required under FATCA especially for those who are from USA and Canada. So most mutual funds require physical presence of the NRI investor in India at the time of investing.
Some mutual funds have stopped accepting monies from USA and Canadian NRI investors. So if you plan to invest in mutual funds, it would wise to allocate some extra time. Be ready with the necessary documents when you are visiting India.
Once the initial investment is done, you can manage your investment online for the most part. Click here to invest in mutual funds online.
Direct Equity
NRIs are also allowed to invest directly into the Indian stock market. However, they are only allowed to trade on delivery basis. This means that NRIs cannot do intra-day trading.
For this you would need to open a NRI share trading account and a demat account with a broking firm. Though the initial formalities need to be done offline, further transactions can be managed with an online trading account.
Read: Direct Equity or Mutual Funds: Which one is a better option?
Futures & Options
NRIs are also allowed to trade in Futures & Options. The initial demat and trading account opening requirements may be different for NRIs. But the rules for trading and margin requirements are almost the same for residents and non residents.
However, tax treatment of capital gain is different and this needs to be considered before taking trading decisions. A short guide on the tax implications is given further down in this article.
Real Estate
One of the more popular investment avenue for NRIs is real estate. This may serve a dual purpose. It would be a wise investment and the sentimental value of owning a property back home is also satisfied.
NRIs are permitted to buy commercial and residential properties. The rental income and capital appreciation over the long term presents a juicy investment option in real estate for NRIs. However, in your absence, it will be wise to appoint a trusted person to manage the asset. The manger can can manage the property, collect the rent, file the income tax returns, if applicable, etc.
NPS
If you are certain about spending their retired life in India, NPS (National Pension Scheme) is a great investment option. The funds can be withdrawn at the age of 60 (with certain exceptions for early withdrawal). A minimum of 40% of the amount has to be used to purchase an annuity plan. The remaining can be withdrawn as lump sum.
So the funds are locked in and invested for a long period of time. That is why this is an excellent tool for those who are certain on spending their retired life in India.
Investors can choose a suitable mix of equity, bonds and government securities for their investment allocation. There is also an auto mode of allocation. The asset allocation is automatically done based on age of the investor in the auto mode.
Fixed Deposits
A simple Fixed Deposit with the bank is one of the oldest and most popular investment avenue. NRE FDs offer attractive rates compared to most developed countries in the world.
If you want to maintain the FD in foreign currency, one can also choose to have a FCNR fixed deposit. The FCNR FD is available in major currencies like USD, CAD or GBP. The interest rates on FCNR deposits are much lower than NRE FD rates. This is because FCNR is maintained in foreign currency while NRE FDs are maintained in Indian Rupees.
The main intention of investing in FCNR is to have protection against forex rate fluctuations.
Tax Impact on NRI investments in India
As a NRI, let’s assume your income earned in India exceeds Rs 250,000 in a financial year. In this case, you are liable to file an income tax return. Any income that originates in India is subject to Indian tax laws. You can check if your country of residence has a DTAA (double tax avoidance agreement) with India. If the DTAA is in place, you can claim relief for the amount of taxes paid in India.
Typical examples of income arising out of India would be rental income, interest income on fixed deposits or saving accounts, capital gains on sale of mutual funds, direct equity or real estate, etc. Interest income earned on NRE accounts and FCNR deposits are tax free .
Tax rates for residents and NRIs are mostly the same. However the difference lies in the amount of TDS (tax deducted at source).
General Guide to TDS rates applicable for NRIs.
- Short term capital gain on mutual funds or equity – 15%
- Long term capital gains on mutual funds or equity – 10%.
- Short term capital gain on real estate – 30%
- Long term capital gains on real estate – 20%
- Rental income – 30%
- Interest on NRO accounts – 30%
Disclaimer: The above mentioned tax rates are general guidelines, the author does not vouch for its accuracy. Please contact your tax consultant for detailed information.
Overall, those are some of the really best investment avenues for NRI investments in India. There are some hassles related to compliance and taxation. However, if you can manage those well, NRIs can reap exceptional returns on their investments in India.