Investment Options for NRIs in India

India has emerged as one of the fastest-growing economies globally, resulting in attractive investment options for NRI in India for Canadian NRIs. Indian migrants, while they stay in a foreign country, often like to invest their money in India. It cannot be denied that emotionally they are attached to their homeland, so they want to build a foundation for retirement and grow their financial portfolio.

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What is an Investment Plan?

An investment plan refers to allocating money in endeavours such as bonds, stocks, real estate property or business that generates income in future. With investment in an asset, the investor hopes to grow money or appreciate its value in future.

Investment options for NRIs in India

As per their needs and investment goals, there are plenty of investment options for NRIs in India. Here are a few:

  1. Fixed Deposits

    This form of investment is most common among Canadian NRIs. The investor can keep his money safe for an unlimited period of time at the same time availing average returns. The interest rate is decided by the bank, tenure of the FD and amount of the deposit. Fixed deposits can be opened through NRE, NRO and FCNR accounts. 

    NRE Account- Non-Resident External Fixed Deposit account is a high return Rupee deposit for NRIs in India. If an NRI wants to manage his foreign currency in Rupee, they can opt for an NRE account. The investor can earn high tax-free interest and foreign earnings can be repatriated. In addition, the account holder can get the loan on the deposit at very reasonable interest.

    NRO Account- NRIs, Person of Indian Origin (PIO) and Overseas Citizen of India (OCI) are entitled to open this account. Through an NRO account, NRIs can manage their Indian income and can jointly hold the account with a resident of India. The interest earned will be taxable. The repatriated amount needs to be reported to the RBI.

    FCNR Account- Foreign Currency Non-Resident Account can be opened in any foreign currency. This account saves funds against any currency fluctuation and interest is not taxable

  2. Mutual funds

    An NRI has to have an NRE, NRO account to invest in mutual funds in India. Investing money through Mutual funds is a cost-effective solution for NRIs. However, some mutual funds do not allow applications from NRIs residing in the US and Canada due to strict regulations under the Foreign Account Tax Compliance Act (FATCA). 

    The tax rates are similar for both Non–resident and regular Indian investors. Short term capital gains are taxed at 15% from equity and equity-oriented hybrid funds, while long-term capital gains beyond Rs 1 lakh are taxed at 10%. 

    The short-term capital gains for non-equity funds are added to income and taxed at a slab rate. The tax on long-term capital gains comes to 20% after indexation. NRI investment is subjected to TDS at mutual funds redemption. For long-term capital gains from equity and equity-oriented hybrid funds, the TDS is 10%. Similarly, the TDS is 20% for debt funds and hybrid schemes with debt-oriented investments.

  3. National Pension Scheme (NPS)

    Through this scheme, Canadian NRIs can invest in equity, debt, or a combination of both. An NRI can open an NPS account if he is between 18 to 60 years and should have an Aadhaar card and PAN card. The NRI needs to have an NRE or NRO account. 

    Two options in NPS are:

    Tier 1: Minimum amount of INR 500 can be made per contribution and a total of 60,000/- per year. The investor can withdraw 40% cash after the retirement age of 60 years, and the rest will be invested in annuity. You will get 20% cash if you retire before 60 years of age. You can get tax benefits up to INR 2 lakh under Section 80C and 80CCD (1B).

    Tier 2: This account is unrestricted and flexible, so an NRI can choose to deposit and withdraw according to his convenience. It doesn't have any tax benefits.  

  4. Direct Equity

    NRIs can invest in the National Stock Exchange of India Ltd through Portfolio Investment Scheme (PIS), which offers higher returns. For investing in the Stock market, the investor needs to keep a close eye on the market situation as it could be volatile at times. NRIs who have a Demat and trading account, an NRE, an NRO account and a PIS account can invest in the Stock market. 

    Equity instruments can be purchased by NRIs without any limit either on the stock exchange or outside it based on certain sectoral restrictions and non-repatriation.

  5. Real Estate

    Real Estate has always been the most popular investment option for NRIs in India. Plenty of real estate investment options like plots, independent houses, villas, and society flats are available. However, the value of rupee against dollar and the Indian real estate market defines the returns and evaluations. 

    The rental income from the property in India is taxable for which a standard deduction of 30% is made. The remaining amount is added to the total income and taxed at standard rates. For the remittance of rental income, NRIs need to submit Form 15CA.

  6. Government Securities

    Government Securities (G-Secs) are a safe investment for NRIs as the Government guarantees the interest and principal amount. NRIs can invest in this scheme through Fully Accessible Route (FAR). Financial year 20-21 onwards, NRIs have the option to invest in 5 years, 10 years, and 30-year bonds issued by the Government of India.

    For longer-term investment strategies, NRIs can invest in the following government securities:

    • Fixed-Rate Bonds- The interest rate is fixed on this bond.
    • Floating Rate Bonds- The interest rate on these bonds will change based on the market rate changes.
    • CPI Bonds or Capital Index Bonds- These bonds come with a coupon payment rate adjusted according to inflation rates in the market. 

    It is a beneficial investment for Canadian NRIs as they have lower credit or default risk and the returns are repatriable tax-free. 

  7. Personal Provident Fund (PPF)

    Anyone with an NRI status cannot open a PPF account. If you had a PPF account before moving out of India and currently have an NRI status, you can continue with the same PPF account. 

    An NRI in Canada can invest up to 1.5 lakh every financial year and continue to invest until it matures. Post maturity, he cannot extend the account. If an NRI is filing I-T returns in India, he is eligible for Section 80C deductions in income tax for PPF deposits.

    If they wish to close the PPF account, the NRI must submit the PPF withdrawal form, photo identity card, and PPF bank passbook. They must also submit a cancelled cheque from his NRO account, where the PPF balance would be credited.

    All documents need to be attested by the bank manager. In case the account holder is not available to perform all formalities, they can send their representative with an authorization letter to the home branch.

  8. ULIPs

    The investors prefer the Unit Linked Investment Plans (ULIPs) as they offer exposure to equity, debt or both with some part of investment towards life insurance. Thus it has double the benefits of investment and insurance. The premium invested in ULIP has two aspects- one part provides a life cover, and the other is invested in the financial market. The minimum lock-in period is 5 years and tax benefits can be claimed under Section 80C of the Income Tax Act.

    Systematic investment in equities procures compound wealth in the long term. To select the right fund, it is essential to judge performance through rolling period returns in ULIP funds. 

Key Considerations for NRIs

  • NRIs should keep in mind that they need to open an NRE and NRO account so that any transaction could happen through it.
  • Foreign currency Non-Resident should be opened to avoid fluctuations in exchange rates of the foreign currency they earn.
  • For buying a Real Estate property, an NRI should consider whether it will be owned by a joint owner or single owner as Tax liability falls on the first owner.   
  • NRIs should have a Permanent Account Number (PAN card) to make investments in India.
  • To make investments through the PIS scheme in the Indian equity market, an NRI must obtain a Portfolio Investment Scheme (PIS) letter from the Reserve Bank of India.
  • Although several investment options are available for NRIs like mutual funds, bonds, and direct equities, NRIs should gain prior information about the schemes.
  • NRI must know the repatriation rules. As per the FEMA rules, in case of a property sale, repatriation of sale proceeds can be up to a maximum of $1 million in a financial year. However, if it is property being gifted, they may repatriate more than $1 million per year. 

These are the various investment options for NRIs in India. They can consider the pros and cons and exercise personal discretion while going ahead and making an investment in any one or more of these options.

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