Various Invesment Options Available for NRI's

India is fast becoming an economic powerhouse. The massive development in the last two decades has made the country one of the attractive destinations for investors from around the world. At the same time, various investment options for NRI have led Indian Diaspora living in different countries like the US, Europe & across the globe to make successful investments here.

• If you are new to NRI investment, you must know what is NRI investment? 
• What are the best options for NRI investment in India? 
• What are the benefits of investment in India? Find out the answers below.

What is NRI Investment?

According to the rules, NRI or Non-resident Indian is a citizen of India who spends less than 183 days in the country in a given financial year. The tax year stretches from April 1st to March 31st in the succeeding year. As a non-resident Indian, you don’t have to pay taxes. 

NRI investment is the investment opportunity that can be utilized by the NRI's to make profits & earn more money.

So, what is the best investment for NRI in India? 

There are many options you can choose from. 

We have listed the best 6 best options which can give you a great return on investment & profits.

1. Fixed Deposits :

• Fixed Deposits or bank deposits is one of the most common types of investment made by NRI's in India. 
• Bank FDs are considered the safest investment option as there are hardly any instances of banks defaulting on them.
• NRIs can start FD's through their FCNR, NRO, or NRE accounts. 
• The rate of interest depends on the bank, amount & tenure of deposit.
• As the name indicates, you deposit money in your account for a fixed time period. 
• You can withdraw the money plus the interest once the period ends. 

1. Fixed deposits in the NRE Account : You may consider opening an NRE account in Indian Rupees. The interest you earn is tax-free, but you may be taxed in your country of residence. The interest rate ranges from 5%-7% depending on the tenure of the deposit.
2. Fixed deposits in the NRO Account : You may use the NRO Account to control your Indian income. For instance, you may receive rental income or dividends from shares & mutual funds that can be paid into the NRO Account. You can remit a maximum amount of $1 million from your NRO account after producing the relevant documents.
3. Fixed deposits in FCNR Account : You can open the FCNR (Foreign-Currency Non-Resident Account) in any foreign currency. It may have a tenure of one to five years. The interest you earn is tax-exempt. Moreover, foreign exchange fluctuations have no impact on the deposits in the FCNR account. 

• There are generally three kinds of Bank Savings Accounts for NRI's namely: 

1. NRE - Non Residential External Account : Money of such an account is kept in rupees. It’s easy to return the money to dollars. Interest rates on these accounts vary depending on the deposit size &/or bank. You can expect interest rates to be around 7% to 9% per year.
   
2. NRO - Non Resident Ordinary Account : This account type is generally used by NRI’s to control their Indian income. Rent income, dividends from investments or pension funds can be paid into these accounts. These accounts have a current limit of $1 million that is allowed to be transferred from this account to a U.S. Account per year. Take note the interest earned on an NRO Fixed Deposit is taxed at a rate of 30%.
3. FCNR - Foreign Currency Non-Resident : Foreign currencies are stored in these accounts. It helps to avoid the currency fluctuations that take place in financial markets. The currency you deposit into the account will determine the interest rate of it. Dollars should cause an interest rate of between 2% to 3%. You can take money from this account at any time & it is not taxed by the Indian government.

The easy deposit process, repatriation of funds & tax exemption for the interest make it an attractive option to invest in.

1. (A) Fixed Deposits : Government Securities :

• Government Securities or G-Secs are a low-risk investment option backed by the Government of India. 
• They are issued in treasury bills or bonds, whose maturity ranges from a few days to several years. 
• These bonds may have fixed interest rates or floating rates that are determined based on market-related changes. 
• Since these are backed by the Government of India, there is no risk of default if you hold it to maturity. 
• However, G-Secs are tradeable securities & their prices in the market are liable to fluctuate based on external factors.
• For longer-term investment strategies, NRI’s can look at the following types of dated government securities :
1. Fixed Rate Government bonds – The interest rate on this bond is fixed.
2. Floating Rate Government bonds – The interest rate on this bond will change according to the market-related changes.
3. Capital Index Bonds (CPI bonds) – These bonds have a coupon payment rate that is adjusted according to the inflation rates of the Indian market.

1. (B) Fixed Deposits : Bonds & NCD's (Non Convertible Debentures) :

Bonds & NCD's have risk involved, but it can also serve as a good investment option. There are three main bond categories :

1. PSU Bonds – Public Sector Undertakings Bonds (PSU) are contracts with a maturity date. You in effect loan money to a Company & they promise to repay it with interest on a specific date (called the maturity date). The interest rate on a PSU will be determined by the creditworthiness of the Company who issues it. These investments are taxed at 20% if you sell it after owning it for more than 3 years.
2. Non-Convertible Debentures (NCD) – This debt is secured by the Company’s assets. The interest rate will, therefore, be a bit lower as secured debt has less risk involved. But, the interest rate on NCD's will still be very competitive when compared to returns on investments like equities. 
3. Perpetual Bonds – These bonds don’t have a maturity date so there is no date by which it pays out. The issuing Company, however, promises to pay the holder a set amount of returns per year. The holders of perpetual bonds trade it on the open market. Market conditions and your willingness to sell will determine if you make a profit with the selling of this investment.

1. (C) Fixed Deposits : Certificate of Deposits (CD's) :

• Certificate of Deposits (CD's) is usually used as a short termed investment. 
• It almost works like a fixed deposit, but the holder of a CD may sell it. 
• You need a dematerialized account to buy and sell CD's. 
• A CD has a maturity date by which it promises to repay a certain amount. 
• Please note, amounts invested into CD's are typically very hard to return to dollars.

2. Equity Investments (Direct Equities) :

• If you are a risk-taker & would want to invest aggressively, equity is the best option for NRIs.
• According to RBI, NRI's can invest in the stock market under the Portfolio Investment Scheme – PIS. (Please Note : Your are permitted to hold only one PIS Account in India)
• A dedicated NRE or NRO bank account is necessary.
• Moreover, a SEBI trading account plus a Demat account that holds shares in electronic form are a must for Equity investments by NRI's.
• However, there is a restriction imposed by the RBI on the maximum limit of a Company's stock an NRI can hold, which currently is 10% of the Paid Up capital of the Company.
• NRI's are not allowed to do Intra-Day trading & short selling of stocks.
• Though the taxation rules for Capital Gains are same for NRI's & Resident Indians, the tax on the gains is Tax Deducted at Source (TDS) for NRI's, by the brokerage at 100% on the Tax Liability.

3. Mutual Funds Investment (MF's) :

Mutual Funds are large pools of money of investors’ money which is managed by qualified and certified professional fund managers. Mutual Funds currently operate under strict regulations of the Securities Exchange Board of India (SEBI). Mutual funds are a bit riskier than fixed deposits, but that is why the returns of mutual funds are more than that of fixed deposit accounts.

• Mutual Funds are riskier than fixed deposits.
• But it provides a better return on investment then Fixed Deposits.
• NRIs would need a bank account in India & use India Rupees for Mutual Fund Investment as foreign currencies are not allowed.
• NRI's can invest in all categories of MF's i.e. Equity Funds, Debt Funds, Balanced Funds, Liquid Funds etc.
• Though investing in MF's looks simple & easier compared to direct equities, it is important to understand the risk profile & investment strategy of each fund before investing.
• As per SEBI mandate & regulations, all MF's grade the MF schemes according to their risk profiles as Low, Moderately Low, Moderately High & High etc. 
• MF scheme are classified as Open Ended, Close Ended & Interval Schemes.
• Depending on the Investment philosophy & nature MF schemes are further re-classified into Equity Funds, Debt Funds, Balance Funds & Hybrid Funds.
• Depending on Investment strategy the are futher re-classified as Sector Funds, Contra Funds, Index Funds etc.
• NRI's can invest across any of these MF's from an NRE or NRO Account, but the repatriation rules will vary depending on whether investment are made from NRE or NRO Account.
• Taxation on Capital Gains on MF Scheme varies according to the type of scheme & holding period of the invested MF. 
• Please note there some limitations for NRI's residing in the US & Canada to invest in Indian MF's due to strict FATCA rules which mandate all the Fund Houses to report to the US Goverment, comprehensive details of all MF transcations of US Citizens including NRI's on a regular basis.
• The eight AMC (Asset Management Companies) of MF Houses which currently accept Investment from US & Canada based NRI's are :
1. ICICI Prudential Mutual Fund
2. SBI Mutual Fund
3. UTI Mutual Fund
4. Birla Sunlife Mutual Fund
5. Sundaram Mutual Fund
6. L&T Mutual Fund
7. PPFAS Mutual Fund
8. DHFL Pramerica Mutual Fund

Predominantly, there are two types of Mutual Funds - Equity Funds & Debt Funds.

3.(A) Mutual Fund Investments : ULIP's : Unit Linked Insurance Plans :

• ULIP stands for Unit-Linked Insurance Plan & combines the benefits of investment & insurance. 
• The hybrid option allocates a portion of your premium towards offering you a life cover & the rest is invested in a variety of financial instruments. 
• A ULIP typically has a lock-in period of 5 years. 
• You can claim tax benefits under section 80C of the Income Tax Act.

4. (NPS) National Pension Scheme :

• National Pension Scheme is a Government backed scheme with tax benefits.
• An NRI between the age of 18 years to 60 years can open an NPS account with a POP (Point of Presence) in India.
• You may open an NPS account with the bank where you have your NRO or NRE account for convenience. 
• Moreover, the pension from the National Pension System will be paid in Indian Rupees.
• You may also open an eNPS account if you have a PAN card or an Aadhaar Card.
• You may consider using your NRO or NRE bank account to invest in the National Pension System.
• There are two types of NPS : Tier 1 & Tier 2 Account with different rules & regulations.
• You may opt for the active choice where you decide on the asset allocation in Equity (E), Corporate Bonds (C) & Government Securities (G).
• However, you can allocate a maximum of only 75% towards Equities.
• You may also opt for auto choice where asset allocation is done according to life stages (Age) if you cannot decide on the right investment proportions.
• If you withdraw from NPS before 60 years you can withdraw only 20% of the accumulated corpus.
• You must compulsorily annuitise the remaining 80% of the Corpus.
• If you are 60 years of age or older at the time of withdrawal, you can withdraw 60% of the Corpus & the remaining 40% must compulsorily be used to buy an annuity plan.
• It is a safer option than bank deposits or in that case PPF.
• NPS offers an annual interest rate of 12-14% as well.
• The matured amount is exempted from tax.

5. Real Estate :

• Among the best investment options for NRIs, Real Estate is a popular one because of the emotional quotient attached to owning property in India.
• As an NRI, you are allowed to invest only in residental & commercial properties & cannot purchase agricultural land, farmland or plantations.
• Investing in property has two benefits : earning regular income through rent & benefit from capital appreciation.
• However, you can own such properties provided you have received it as a gift or as inheritance & the sale proceeds have to be mandatorily received in NRO Account, to which repartriation restrictions apply.
  

6. Others :

• NRIs can invest in other options like Government securities, treasury bills, debentures, national saving certificates, debt instruments, etc.
• The tax benefits or implications may differ from one option to another.