Options for NRIs to invest in India – Part 1
India with its booming economy offers many attractive options to investors. India is growing economic power has been well noticed by foreign investors including non-resident Indians which make it a preferred hub for investments. Weakening rupee makes it even more attractive for them to flow their money to the home country. The government is also encouraging NRIs to invest with its simplified rules and regulations to boost the inflow.
Here are some the investment options for NRIs in India:
There are various options available to invest. However, it should totally be dependent on the individual’s financial goals and risk appetite. For NRIs, it’s even important to know the tax treatment before investing to get an idea of post-tax return. Read on to know the options:
- Bank Fixed Deposits: NRI’s can invest in bank deposits in three ways through different accountsNon- Resident External (NRE) account: These deposits can be made through NRE savings account which is maintained in Indian rupee. NRE accounts are meant for money earned outside India. Interest on NRE deposits ranges between 6.5% – 7%. The deposit cannot be withdrawn for a year. Both principal and interest part of the NRE bank deposits are completely repatriable in nature. Interests earned in NRE deposits are tax-free in India.Non-Resident Ordinary (NRO) account: NRO accounts are basically meant for money earned in India in the form of rent, Indian salary, dividend on investments etc (after becoming NRI) and also to hold existing funds which was earned before NRI status. Repatriation in NRO accounts is limited to $1 million per financial year. Being an NRI, you can invest in bank deposits through NRO account also. The only interest part of such deposits can be repatriated. But, interest on NRO deposits is taxable in India as per income tax law at marginal rate i.e. 30%.Foreign Currency NonResident (FCNR) account: NRI can hold deposits in foreign currency (Dollar, Euro, Yen, Pound, etc) through FCNR account and they are unaffected by exchange rate fluctuations. These deposits are tax-free and fully repatriable in nature. However, the interest paid on these accounts is very low.
- Investments in Government Securities and Bonds: NRIs are free to invest in government securities and bonds. Non-convertible debentures can fetch 7-8% INR return especially when Indian rupee starts appreciating. Government bonds are usually for the expansion plans which are fixed-return based investments. Proceeds from investments made through NRE accounts are repatriable in nature.
It is a good investment option for NRI investors seeking safer investments and is comfortable with lower returns. It is advisable to invest in government securities through gilt mutual funds to ensure easy transactions and tracking.
- Certificate of Deposits (CDs): Certificate of deposits is basically a money market instrument which is issued by financial institutions for a shorter period of time. They offer higher interest rate when compared with bank deposits of shorter tenure. NRIs are allowed to invest in Certificate of Deposits only on repatriable basis.
While this is a good option for short-term goals, the returns are relatively low and the process to invest is complex.
- National Pension Schemes (NPS): It is a good investment option for non-resident Indian who holds Indian citizenship. Investment can be made in both repatriable and non-repatriable for through NRE and NRO account respectively. NPS comes with a minimum age restriction of 18 years to the maximum of 60 years. Hence, NRIs can consider this safe investment options to build a good retirement corpus. Investment in NPS is allowed as tax deductions under Section 80C of the Income Tax Act. An additional deduction of Rs. 50,000 is allowed (over and above the limit under Section 80C) as per Section 80 CCD (1B).
However, NPS is practically locked in till the age of 60, after which 40% has to be compulsorily converted into an annuity.
There are quite a few other areas of investment which an NRI can explore. Click here to read Options for NRIs to invest in India – Part 2