Everything about NRI Investment in India

India is known as one of the fastest-growing economies in the world.  Over the last two decades, the country has witnessed massive developments and it has also attracted foreign direct investment. However, when it comes to NRI investment in India, the NRIs are often sceptical about it. For years now, Canadian NRIs have believed that it is a herculean task to invest their money in India.

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However, when it comes to providing opportunities to Canadian NRIs to create investments in India, there are a plethora of investment options available in India. Similar to every investor, the NRIs also need to explore the different investment options available in the market and choose to invest in one that not only fulfils the financial objective but also meet the risk profile. Let’s read further to know in detail about NRI investment in India.

Who is an NRI?

An NRI or Non-Residential Indians is a person who is an Indian citizen; however, lives abroad. In other words, it can be explained as an Indian citizen who resides outside India for a combined total of at least183 days in a financial year (or tax year) is considered to be an NRI.  The period counted for every financial year starts from April 01  to March 31st of the succeeding year.

What Types of NRI Account, Canadian NRIs Should Have in India?

The NRIs based in Canada must register for NRE, NRO and FCNR account before investing in India. These accounts help the investors to transfer foreign earnings in Indian currency to Indian accounts. These accounts also allow the NRI investors to manage and earn income from Indian investments. The following are the detailed explanation of types of NRI account.

NRE Account

NRE or Non-residential External Account is a bank account opened in India in the name of the NRI, to park their foreign earnings in India.

NRO Account

NRO or Non-residential Ordinary Account is a bank account opened in India in the name of the NRI, to manage income earned by them in India. The NRO account manages the earning earned in India like dividends, pension, interest, rent, etc.

FCNR Account

The Foreign Currency Non-resident Account (FCNR) is a type of bank account opened in India in the name of the NRI, that allows the NRIs to save money overseas in form of foreign currency in a term deposit. The interest earned from an FCNR account is exempted from income tax. In this account, the NRIs can save their earnings in one of the six currencies i.e. Canadian, US$, $, Euro, AU$, Pound and Yen.  Moreover, the fund can be transferred from FCNR to the NRE account.

Best Investment Options for Canadian NRIs to Invest in India

Many NRIs live in this misconception that they are not allowed to invest in India. However, on contrary to this there are many different investment options available for NRIs to invest in India. The main objective behind the investment is to secure the finances.  Let’s take a look at some of the most sought after NRI investment options for Canadian NRIs to invest in India.

Capital Guarantee Solution Plan

Capital Guarantee Plan is a ULIP plan that majorly focuses to safeguard the investor’s money from any losses that may occur during the economic downturn. The capital guarantee plan offers the combined benefit of investment and insurance to the investors wherein 50-60% is invested in capital protection and debt and the rest is invested in equity. One of the major advantages of this plan is that it offers a 100% guaranteed return of the premium invested plus added advantage of the market linked return. The capital guarantee solution plan comes with a different policy tenure of 10,15, 20 years and different premium payment tenure.

This plan is one of the best NRI investment options in India as it safe and offers guaranteed returns. Moreover, as compared to bank FD, the returns offered in Capital Guarantee Plan are high because it reinvests in debt and equity securities.

Unit-Linked Insurance Plan

As per the Foreign Exchange Management Act (FEMA), the NRIs can invest in ULIP. It is considered a lucrative option of investment for NRIs as it offers the benefit of investment as well as insurance coverage to the investors. ULIPs are best for those who aim for long-term investment.  Along with the benefit of investment returns and insurance coverage for the family it also offers the advantage of tax deduction. However, before investing NRIs need to check the taxation law in their own country to ensure that they don’t end up paying taxes on their investment in India.  

In the ULIP plan, a part of the premium is invested in different market securities like equity or debt to gain profitable returns and for capital appreciation in the long term.  Along with the benefit of equity return, the ULIP plan also offers the benefit of inbuilt life cover to take care of the family in case of any eventuality.

*In Budget 2021, to rationalize ULIP taxation, it is proposed to allow tax exemption in ULIP for maturity proceeds having an annual premium up to Rs.2.5 lakh. However, the amount received as a death benefit shall continue to remain tax exempted without any applicable limits on the premium amount. The limit of Rs.2.5 lakh on the annual premium of ULIP shall be applicable only for plans taken on or after 01.02.2021.

Government Securities

The government securities are another remunerative option for Canadian NRIs to invest in. The RBI has started a separate medium known as ‘Fully Accessible Route’ to help the NRIs to invest in certain government securities. These are low-risk investment options wherein the investments are made in government securities or corporate bond to gain a steady return on investment. These securities can either be long-term or short-term investment and the maturity term of these securities ranges from days to fifty-two week.  On seeling the securities, the NRIs are paid at face value. Some long-term government securities are:

  • Floating rate government securities
  • Fixed-rate government bonds.

National Pension Scheme

This is an ideal investment option for NRIs who wants to do retirement planning in India.  Any individual between the age of 18 years-60 years can invest in National Pension Scheme. In NPS the NRIS can choose from 7 different fund managers. Moreover, it also offers the advantage of tax exemption to the investors. As manages and regulated by the Pension Fund Regulatory and Development Authority of India, the NPS is one of the safest options of investment in India for NRIs.

As a long-term investment plan, the maximum amount contributed up to a limit of 1.5 lakh is tax exempted under Section 80C of the IT Act. Moreover, the NRIs can also avail of tax exemption under Sec 80 CCD(1B) of the Income Tax Act. In an NPS account, the investors can withdraw 60% of the contribution whereas the rest 40% is used to purchase an annuity so that one can have a regular flow of income after retirement.  Besides this, it also offers the option of partial withdrawal after retirement. 25% of the accumulated corpus can be withdrawn before maturity in case of an emergency.

Mutual Fund

Mutual Fund is another best NRI investment option in India to invest in.  Investors who have a risk-taking ability and who wants to gain high returns and create wealth in the long-term should prefer investing in mutual funds. In a Mutual Fund, the investors can choose from an extensive range of fund options as per their investment objectives and risk appetite.  It is great for investors who have limited knowledge of the market and who invest in the market with an objection to create a financial cushion in the long term To invest in a mutual fund, the NRIs should have NRE, NRO or FCN account.

*” The investment risk in investment portfolio is borne by the policyholder”.

Bank Fixed Deposit Accounts

Bank Fixed Deposits are one of the most preferred investment options for NRIs in India. Any individual can open a fixed deposit account in public and private banks. As the safest option of investment, the investors can deposit money for a fixed tenure for a different interest rate as compared to any other savings accounts. The accumulated sum can be withdrawn from the FD account only upon maturity. However, premature withdrawal can be done by paying a penalty. To invest in bank FD  in India, the NRIs should have NRO, NRE or FCNR  account.

However, in terms of the best investment option, the guaranteed return plans offer a better return as compared to FD. Moreover,  the guaranteed return plan does not include any reinvestment risk whereas, there is reinvestment risk in FDs.  The other thing that makes the guaranteed return a more lucrative option of investment is that the guaranteed returns are tax-free, whereas in FD the maturity amount is taxable.

Why Should NRI Invest in India?

When it comes to investment, it is all about allocating the finances smartly so that one can gain profitable returns in the long term. India is known as one of the fastest-growing economies in the world. With an equity return of above 15% per year and a guaranteed interest rate as high as 6%, India has a booming investment market as compared to the other countries.  

Even though globally, the term deposit rates have come down significantly including India. The FD rates offered in India are still better than the term deposit rates of other countries.

Country

Term Deposit Rates

UAE

2.5%

UK

2.0%

US

1.5%

Australia

3.4%

Malaysia

3.3%

Kuwait

5.6%

Canada

2.8%

Singapore

4.6%

India

6.25%

As an NRI by investing in India, one can not only create a financial cushion for themselves but can also achieve long-term or short-term goals like creating an emergency fund, retirement planning, etc. Here are some of the reasons why an NRI should invest in India.

Create a Financial Asset

Investing enables to multiply the financial wealth and create a financial asset. For instance, purchasing property means that it can add value in the long-term or it can be rented out to earn rental income. Moreover, it can be used as a security while applying for loans. By choosing the right NRI investment options, an individual can multiply their financial assets rapidly.

Retirement Planning

Retirement planning is one of the most important aspects of financial planning. The earlier one starts to plan for their retirement the more secured retirement they can have for the future. To create a strong retirement fund, the NRIs can invest in NPS and PPF. The amount of money an individual will invest and save will determine the standard of living they can afford post-retirement.

Get Returns

 Some of the  NRI investment options in India provides an opportunity for capital creation along with the benefits of good investment returns in the long term. The NRIs can choose to invest in a capital guarantee plan or mutual funds to earn profitable returns. These plans mainly invest in market-linked securities with the objective to gain high returns on investment. The invested amount will grow according to the interest rate or growth rate on NRI investment in India.

Send Money to Family

There are many NRIs whose family or parent resides in India. NRI investment in India provides an opportunity to support the family residing in India financially. The investment returns gained in India can be used to provide financial security to the family in times of need or can also act as an emergency fund.

Comparison of NRI Investment Options in India

Investment

Return Potential

Risk

Suitable for

Capital Guarantee Plan

Moderate-High

Low

All

Bank FDs

Low

Nil

Risk-averse investors

NPS

 Moderate-High

Medium

All

ULIP

High

Medium

All

Mutual Fund

High

Medium- High

All

In the Nutshell

India is a fast-growing country and thus it attracts the NRIs attention to invest here for a secured future. By considering these investment options, the NRIs can create a strong portfolio of different asset classes and fulfil their different financial objectives in life.

Written By: PolicyBazaar - Updated: 16 September 2021
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