If you are an NRI who is willing to park their savings in India and confused about the instrument to invest in, then this article is worth a look. There are almost 3.2 crores NRI’s from India residing in different parts of the world and making a lot more money than an individual working in India. Many NRI’s want to come back to India when they are semi-retired or fully retired and expect to have saved for a comfortable life upon arrival. We are going to discuss various options available for investments for NRI’s and why they should park their savings in India. Nris should plan their investment in such a way that it will give high returns ensuring future security
Bank accounts for NRI’s – NRE or NRO
The moment an individual becomes an NRI, they need to switch their savings account into an NRE or an NRO account. An NRE account is where you can withdraw money easily from the NRE account and use that money, where you are residing. In other words, these funds are repatriable. Moreover, you can hold funds in both domestic and foreign currency and the income generated is tax free. Whereas, an NRO account is where you can only hold funds from your Indian income and the income generated is taxable. This money is not freely repatriable.
Why NRIs should plan their investments in India?
India is one the fastest growing Economies
India is considered one of the fastest growing economies and is in the 4th position in terms of GDP, behind only USA, China, Japan and Germany. India has a lot of prospects for growth in different sectors as compared to saturated markets of developed countries. One of the chief reasons for this is the Indian demographics – a very young and dynamic population. On top of that, India has turned out to be a stable economy in the past decade and it is important to park your money in a stable economy. An NRI’s investments in India also help boost the foreign reserves of the country.
In comparison to various developed nations, the returns on investment in India is quite high. This can also be validated with the fact that India has attracted large foreign investments in the form of both direct and institutional investment in the past decade. Interest rates in US are around 2-3% and even negative in some developed countries. Whereas, India gives about 7-9% on deposits. Many NRI’s make such mistakes of holding money in their foreign bank accounts and end up earning very little on their savings.
Basis understanding of investments in India
If you have lived in India for some time, there is a high probability of you being aware of the investment products and options. Also, you will feel secure with your investment as you are already familiar with Indian markets and the sense of security associated with banks.
Return to India
Most NRI’s return to India after a certain number of years because of several reasons like sense of belonging to the culture, family etc. and then invest their savings in the Indian markets. Sometimes, when you invest in some other country and plan to come back, you are restricted in supervising your investment due to certain factors. So, it is recommended to invest in a country where you finally plan to reside.
What are the best Investment Options for NRI’s ?
Bank NRE Deposits
NRE deposits by banks is one of the most prominent choices for NRI’s. Interest earned on such deposits are tax-free and these deposits are risk free as well. An individual can devote some portion of their savings in these accounts if the investment horizon is less than 5 years. Many NRI’s use NRE accounts for earning extra income by taking loan in the country they are residing at low rates and investing in NRE accounts for earning higher rates.
Among the most favoured investment prospects for NRI’s is real estate. Real estate requires large amounts for investments. Unless you are fully aware of the property and the area where you are buying, you should not invest in real estate. As it involves a lot of money, there is a high chance that you might buy the property at a very high price or get into a legal matter etc. To avoid such pitfalls, one must make sure to research the property well and may also consider getting some legal advice before making the investment.
Investments in stocks is always a good option for NRI’s, but it requires good knowledge of the equity game and proper research into prospect companies. If an NRI is seeking high risk/return, direct equity is a good bet. One should still diversify to avoid risk as being an NRI it is not easy to track portfolio all the time. If an NRI is short with time to track portfolio, they should always consider investing in mutual funds. Also, investments in direct equity require an NRI to mandatorily open a Portfolio Investment NRI Scheme (PINS).
Mutual funds for NRIs have been gaining popularity as a top choice for investments. Mutual funds provide proper guidance on investment according to your investment goals. Mutual funds are well diversified in a wide array of securities and are professionally managed. Which is highly beneficial for an NRI as they don’t have to spend their time on tracking their investment regularly. This investment comes in 3 primary types: Equity Funds, Debt Funds and hybrid mutual funds. Each of them falling into different risk/return profile. This differentiation gives you the option to select according to your investment goals and your risk appetite. One may also invest across categories for diversification.
How to avoid double taxation for NRI investments?
India has a DTAA agreement (double taxation avoidance agreement) with many countries. Which helps them avoid paying double taxes in India and country of residence. The NRI has to pay tax according to the tax rate of India or any other country, whichever is higher. E.g. If a person residing in the US and has an FD in India. Suppose the tax rate in India is 15% and in US it's 30%. The NRI has to pay 30% on gains from FD in total. Where he will pay 15% in India and the rest 15% in US to balance the tax on gains.
Frequently asked questions (FAQs)
Can NRI invest in government bonds?
Yes, NRIs can now invest in Government bonds and securities. This is a recent change, earlier NRIs were not allowed to invest in G-Sec. You can get repatriation benefits only if you have made investments made through FCNR or NRE accounts that have completed 3 years.
Can NRI invest in SIP in India?
Yes of course. All you need is a NRO or NRE account and you can invest in Mutual Funds as a NRI through SIP mode
Can a NRI invest in PPF?
No, NRIs cannot invest
Is NRE FD tax free?
Yes it is tax free.