Best NRI Investment Options in India – 2018

NRI Investment Options in India

The population of Non-Resident Indians (NRIs) is huge. It is estimated that there are 16 million Indians living outside India as per a UN survey.

NRIs are looking for Investment Options in India but problem is that NRIs tend to succumb to marketing gimmicks by sellers (mostly bankers) and end up buying products which they don’t need.

Let’s check

Investment options for NRIs in India

As an NRI, you cannot participate in all investment options. But there are some investment options available. Let us look at these –

FDs in NRO Accounts

NRIs can invest in Indian currency FDs in NRO.

Interest rate is good. Risk is low.

Interest on NRO account is taxable and the tax is computed at 30% of the interest earned. It is deducted at source.

It might be subject to tax in the country you live in depending on certain conditions. If there is tax to be paid, a beneficial tax rate or a refund can be claimed depending on conditions of the Double Taxation Avoidance Agreement (DTAA) .

FDs in NRE Account

As an NRI, you can have an FD in NRE account.

Interest is tax-free. Risk is low. The interest rate ranges from 4.90% – 7.75%.

FDs in FCNR Account

FDs can be opened for a period of 1 to 5 years.

It can be in any currency.

Interest is exempt from tax till the person is an NRI or a Resident but Not Ordinarily Resident (RNOR).

Stocks (Equity)

An NRI can invest in direct equity. To do this, he needs to open an NRE account which is called a Portfolio Investment Scheme. This can be linked to a demat account which can be opened with any registered stock broker in India.

Returns in Equity are high over long-term. Equity investments have the ability to beat inflation and make your wealth grow.

Risk is also higher compared to FDs and PPF. You should only make informed decisions.

If the investment is sold within 1 year of purchase, tax is 15%. If the investment is sold after a year, there is 10% tax.

Mutual Funds

NRIs except from U.S and Canada can invest in Mutual Funds. NRIs from US and Canada have certain restrictions and can buy only a select few Mutual Fund schemes.

Depending on risk profile, an NRI can invest in equity funds, balanced funds, debt funds, liquid funds and MIPs.

The gains on sale of non-equity funds within 3 years of holding will be considered as short-term capital gains. It will be taxed at 30%.

Gains on sale of non-equity funds after 3 years are long term gains. They will be taxed at 20% after indexation.

Taxation of Equity Mutual Fund is same as stocks.

Tax is Deducted at source (TDS) by Mutual Fund Companies.

Good funds give returns that can beat inflation in long term. They are managed by professionals so they are less risky in comparison to direct stocks.

There are various options in MFs. You can use SIPs for regular investments and SWPs for regular withdrawals.

Read – NRI Mutual Fund Taxation In India – How it’s different

Investment Options for NRIs

Real Estate

NRIs can invest in residential real estate and commercial real estate. They can avail of loans in India to buy property. NRIs are not allowed to invest in farms, agricultural land, and plantations.

If you invest carefully in reputed properties, it can appreciate quite a bit.

But it might be tough to stay updated from far away and it is difficult to manage if there are some documentation or any processes  to be done

Sale of house property after 2 years of purchase is considered a long-term capital gain, and a TDS of 20% is applicable.

Sale of house property within 2 years of purchase is considered as short term gains and a TDS of 30% is applicable.  buyer shall deduct TDS at 20%.

You are allowed to claim capital gains exemption by investing in a house property in India as per Section 54 or investing in Capital Gains Bonds as per Section 54EC.

You can also deposit your gains in a PSU bank or other banks as per the Capital Gains Account Scheme, 1988. Claim this as an exemption while filing returns and you will get a refund.

NPS

NRIs can open NPS accounts. Now there is option of opening an eNPS account as well if you have the PAN card or Aadhaar card. NRE or NRO accounts can be used.

If you are an NRI between the ages of 18 and 60 years, you are allowed to open an NPS account with a bank in India called the Point of Presence. You can choose the asset classes in which your funds should be distributed in. If you do not choose, automatic distribution across asset classes as per age will be done.

For an investor below the age of 60 –

  • A minimum of 80% of the total investment will have to be annuitized and withdrawal is limited to a maximum of 20%
  • If the total corpus is less than Rs. 1,00,000, the entire sum can be withdrawn

The annuities and the maturity account are taxable.

For an investor who is 60 years or above-

  • A minimum of 40% of the total investment will have to be annuitized and withdrawal is limited to a maximum of 60%
  • If the total corpus is less than Rs. 2,00,000, the entire sum can be withdrawn

The pension/annuity will be paid in INR. It is best to open an NPS account with the same bank where the NRE/NRO account it.

It may not be the best bet considering the withdrawal rules, illiquidity and taxation if there are better alternatives. A small amount can be invested in it is required only if the NRI is sure to settle in India post retirement.

NSC

If you had invested in NSC when you had the status ‘Resident’ – you should withdraw that amount or you will get returns equal to Saving Bank.

PPF is a 15-year scheme, which can be extended indefinitely in blocks of 5 years. However, for a resident turned NRI, the extension is not allowed.

wiseNRI

PPF

If you opened your PPF account when you were a resident Indian – you can contribute & continue that. If you are an NRI – you can’t open a new PPF account.

Please share if you have come across any other investment option for NRIs in India.

About the Author

Hemant Beniwal is a CERTIFIED FINANCIAL PLANNER and his Company Ark Primary Advisors Pvt Ltd is registered as an Investment Adviser with SEBI. Hemant is also a member of the Financial Planning Association, U.S.A and registered as a life planner with Kinder Institute of Life Planning, U.S.A. He started his Financial Planning Practice in 2009 & is among the first generation of financial planners in India. He also authored Bestseller book "Financial Life Planning".

  • sanjay says:

    can NRI from USA invest in Bonds, ETFs, Tax Free Bonds, Corporate FDs ? which MF can they invest and how?

  • Seetharama says:

    1. You have not mentioned about PMS services…..,most relevant.
    2. The implications of 10% LTCG tax on equity, and eq. MF may be briefly mentioned.
    3. House property sale: The need for the purchaser to deduct tax and deposit with IT – is important to mention, although you have commented on refund.
    4. Good advice included: advice on -ve associated with real estate investment.
    5. Add a separate section in web-site on taxation in India (and wherever possible, in foreign country of resistance, mainly USA and Canada).

  • Deepak says:

    Thank you for the periodic informative articles and updates. I believe there is a temporary relief for existing NRI PPF account holders. I presume they can now hold on till Maturity.

  • Mahdiya says:

    If I’m getting inheritance… the builders want to cut tds on source … my ca is saying I can avoid taxation if I buy property in India and sell it in a year .. is that true

    • Dear Mahdiya,
      There is no Inheritance Tax in India. Thus, when one receive property as “Inheritance”, no TDS will be deducted. On selling of ” Inheritance Property”, there are tax implications and also available option to avoid taxation.
      Your CA will be a better person to answer.

  • Rahul says:

    Hi Hemant,
    I wanted to check if an Investment is made in PMS of a a person who is currently Resident Indian but Status will change in 2 months time to NRI.
    He has moved abroad, but his status has not changed yet.
    How would the withdrawal be impacted with status changes say after 3 years – Is there a TDS?
    What are the tax implications and exit options.
    ​Would be grateful if you can throw some light on this.​

    • Hi Rahul,
      NRI cannot invest directly in PMS. They have to route through PIS accounts. That’s the biggest change.
      Legally – he cannot receive funds in resident account if he declares as nri.. Either NRO or nre
      Since we already know the status change is going to happen, it’s not a good idea open in the Resident Indian. You are not allowed to buy certain stocks as NRI so the client could end up with compliance issues.
      Better to wait for status change and then invest.
      Check our post on the impact of residential status change https://wisenri.com/nri-change-residential-status/

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