NRIs are looking for Investment Options in India but the problem is that NRIs tend to succumb to marketing gimmicks by sellers (mostly bankers) and end up buying products that they don’t need.
It’s important that NRIs first should look at their goal & risk profile – then only hit search for NRI investment options in India.
Best Investment options for NRIs 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.
But as an NRI, you cannot participate in all investment options to diversify. But there are some investment options available that you can consider. Let us look at these –
Low Risk – Investment Options for NRI
I don’t want to count the bank account as an investment but as you need an account for the rest of the investments I am adding it here. There are two types of popular accounts that NRIs use:
- NRE (Non Resident External Account) – this is preferred by most of the NRIs as repatriation of money is easy. They transfer there foreign currency in India and use this account for investments. Interest is tax free.
- NRO (Non Resident Ordinary Account) – for your income in India like rental this is a good option. Repatriation of money is also possible but with additional documentation & process. Interest is taxable.
Note – it’s illegal for an NRI to hold Resident Indian Savings bank account – if you have one, you should immediately convert that to NRO account.
Fixed Deposit in NRO Accounts
NRIs can invest in Indian currency FDs in NRO.
The interest rate is good. The 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) .
Fixed Deposit in NRE Account
As an NRI, you can have a Fixed Deposit in NRE account.
Interest is tax-free but you have to understand that it can be taxed in your resident country. Risk is low. The interest rate ranges from 4.90% – 7.75%.
Here are some FD interest rates that indicate the range of interest paid by banks on non-resident accounts
|SBI – NRE Term Deposit||1 year- 2 years||6.70%|
|3 years- 5 years||6.80%|
|SBI – NRO Term Deposit||46 days-179 days||6.25%|
|3 years – 5 years||6.80%|
|HDFC – NRE Term Deposit||1 year 17 days – 2 Years||7.30%|
|3 years 1day – 5 years||7.25%|
|HDFC NRO Term Deposit||46-60 days||6.25%|
|3 years 1 day – 5years||7.25%|
|ICICI – NRE Term Deposit||1 year -389 days||6.90%|
|3 years 1 day – 5years||7.25%|
|ICICI – NRO Term Deposit||46 days-60 days||6.00%|
|3 years 1 day – 5 years||7.25%|
FDs can be opened for a period of 1 to 5 years.
It can be in any foreign currency.
Interest is exempt from tax until the person is an NRI or a Resident but Not Ordinarily Resident (RNOR). Another benefit is that you will not have any impact from foreign exchange fluctuations.
You can check our detailed post – FCNR Deposit
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.
If you opened your Public Provident Fund 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.
NCDs or Corporate FDs
NRIs can invest in Non Convertable Debentures or Company Fixed Deposits if the issuer is allowing them to participate. These will be taxable so one should consider is tax liability or compare their return with NRE FDs which are tax free.
Indian Government has now allowed NRI to invest in government securities and T-bills on a repatriable or non-repatriable basis.
NRIs can also invest in various bonds if the issuer allows the same be it PSU bond or perpetual bonds. A few years back government also issued tax free bonds to NRIs.
High Return – NRI Investment Plans For NRIs in India
An NRI can invest in the Indian stock market. To do this, he needs to open a Portfolio Investment Scheme – commonly know as a PIS Account. This can be linked to a demat account which can be opened with any registered stockbroker in India.
Returns in the Indian stock market are high over long-term but not without volatality. Equity investments have the ability to beat inflation and make your wealth grow.
Risk is also higher compared to FDs and PPF in any stock market related instrument. 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.
NRIs can open trading account but they can’t do day trading in stocks – they can only sell the stocks that are already delivered to them.
NRIs except U.S and Canada can invest in Indian Mutual Funds. NRIs from US and Canada have certain restrictions and can buy only a select few Mutual Fund schemes. (even other fund houses request for additional information at the time of purchase & in few case even at the time of redemption)
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 Mutual Fund for NRIs more or less the same as Resident Indian but for NRIs Tax is Deducted at source (TDS) by Mutual Fund Companies.
Good Indian mutual 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 for investing in Mutual Funds. You can use SIPs for regular investments and SWPs for regular withdrawals.
Equity linked savings scheme or ELSS have become one of the most favored tax saving instruments for all including NRIs if they have some income in India.
Read – NRI Mutual Fund Taxation In India – How it’s different
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.
Check – Planning for Retirement in India
NRIs can open National Pension Scheme accounts. Now there is an 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. 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. You can read our detailed post on NPS for NRI
PMS or Portfolio Management Services are complex and risky. For 90% of the investors, Mutual Fund is a good way to participate in equity markets. But US-based NRIs due to tax issues when they invest in Mutual Funds can consider PMS as one of the investment options in India (but after doing due diligence). Don’t only look at the returns – also check risk & cost involved.
ULIPs or other insurance products are sold to NRIs by bankers to maximize their earnings in the short term as these products have heavy upfront commissions. We normally not suggest mixing insurance & investments but even if you are offered such products – do detailed research before signing dotted lines.
Please share if you have come across any other investment option for NRIs in India.