Investment products are usually divided into two classes: financial assets and non-financial assets. These financial assets are market-linked products like stocks and mutual funds, and fixed income products, like fixed deposits and public provident funds.Read more
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Finding the best way to invest money in India for Canadian NRIs entirely depends on the investor's financial goals, time frame, and risk appetite. Before taking any decision, the investors need to have all information about different investment products.
Here are the popular options for Canadian NRIs to invest in India:
National Pension Scheme is a long-term retirement saving scheme that provides a systematic investment plan for individuals during their earning life. A well-recognized citizen model came into existence on 1 May 2009 that was managed by Pension Fund Regulatory and Development Authority (PFRDA).
The most advantageous aspect is low cost as the fund management charge is 0.01% of the funds. There is an additional tax benefit as- upon contributing more than 1.5 lakh in a year. The amount above Rs 1.5 lakh can be claimed as a deduction under section 80CCD. Corpus on maturity is partially tax-free (tax-exempt status given to 40% of the corpus amount).
In NPS, 40% of the accumulated corpus must be invested in an Immediate Annuity Scheme at the time of maturity. The amount is locked for a lifetime. The age for joining NPS is from 18 to 60 years.
Equity mutual funds invest in stocks of companies across all market capitalization. According to the Securities and Exchange Board of India (SEBI) Mutual Fund Regulations, 65% of mutual fund assets should be invested in equity and equity-related instruments.
Equity mutual funds belong to the riskiest class of mutual funds as they have the potential to generate higher returns than debt and hybrid funds. The equity mutual funds can be classified according to Market capitalization, sectors and tax saving:
These funds are actively or passively managed in an investing style of value-oriented or growth-oriented. A significant amount is invested in the equity segment, and the rest may go into debt and money market instruments. It reduces the risk level to some extent.
In the Public Provident Fund, the minimum investment amount is Rs 500 and the maximum is Rs 1.5 in a year.
The investment of Rs 1.5 lakh per year for 15 years in PPF, with an interest rate of 7.6%, will acquire the corpus of Rs 42.5 lakh. The process of compounding means the investor puts the maximum amount in the initial years so that the fund could compound and grow. The PPF account can be extended beyond 15 years in a block of 5 years, with or without making a new contribution.
ELSS is a tax-saving equity mutual fund suitable for those who are comfortable with volatility in these investments. PPF is suitable for those who are looking for growth in savings rather than returns.
Stock market may give high, inflation-beating returns but it may not be guaranteed due to its volatile nature. It depends on the investor’s risk-taking spirit as he must be ready if a loss happens. It is always advisable that any emergency funds must not be invested in stock markets.
To avoid losing money, investors can opt for the stop-loss method. In this method, an advance order is made to sell a stock at a specific price. Another way to reduce the risk is investing money all across the sectors and market capitalization. For direct equity investment, the Demat account needs to be opened.
To make investments in Direct Equity, the investor should have the proper accounts- a bank account, a Demat account and a trading account. Banks have an option of opening 3 in 1 accounts where all three accounts are linked in one account.
This type of funds scheme provides steady returns to investors. These funds invest in fixed-interest generating securities like government securities, treasury bills, corporate bonds, commercial paper, and other market instruments. They are not as volatile as equity funds, so less risk is attached to them.
Although they are less risk-oriented, the risk of interest rate risk and credit risk is associated with them, so investors should be aware of related risks before making any investments.
Bank fixed deposits are a safe investment for Indians. The coverage for both principal and interest amount was maximum of Rs 1lakh before a rule came out on February 4, 2020, under the deposit insurance and credit guarantee corporation. Here each depositor can have investment up to a maximum of Rs 5 lakh.
Investors looking for a fixed, assured, and regular income can opt for the Bank FD option. By using the laddering approach, investors can spread the amount in different maturities instead of locking in funds for a particular time. Upon maturation of shortest term FD, the process will go on, and the investor can renew it for the longest duration. Using this approach manages the reinvestment risk and provides liquidity to funds.
Senior Citizen Saving Scheme has been popular because it offers regular income, the highest safety and tax benefits. Anyone aged 60 or above can invest in the scheme, including those who took voluntary retirement.
The tenure for the SCSS scheme is 5 years, but it can be extended by 3 years after its maturation. The interest rate is fully taxable on SCSS and is payable quarterly. However, after the investment has been made to the scheme, the interest rate will remain the same till the maturity of the scheme. Under section 80 TTB, a deduction of up to Rs 50,000 can be claimed on the interest earned in a financial year.
In current society, where buying physical gold could be a problem due to making charges and its authenticity, it is owned by the investor in a paper form. Earlier, many investors benefited from paper gold as Gold Exchange Traded Funds (Gold ETFs), now as Sovereign gold bonds (SGBs).
A long-term goal for your gold investment is profitable as the SGBs mature after 8 years. The return from short-term goals could be highly volatile. Owning gold in paper form is cost-effective as there is no entry cost in SGBs and Gold ETFs. Interest on the Bond is taxable, but the redemption of the bond will be exempt from Capital Gain tax, as proposed by Financial Budget 2016-17.
Many banks and insurers offer ULIPs or Unit Linked Insurance Plans in India to NRIs in Canada. They can provide good returns over a short period, and the investments are under FEMA guidelines. Investors can opt for the right ULIP based on their financial goals and risk profile. They can only apply online without any hassle.
Canadian NRIs should check the taxation laws in their countries before investments. This will ensure that they don’t end up paying unnecessary taxes on their insurance cover and investments in India.
Return from Real Estate investment comes in two ways- rental income and capital appreciation. Real Estate has many options for investment like plots, villas, society flats, bungalows and independent houses. However, the property's location determines the appreciation of the property and rental income.
Real Estate Mutual Funds are close-ended units. Real Estate Mutual Funds (REMFs) are known as Real Estate investment trusts (REITs). REITs and Mutual funds are different based on investment and trading, as REITs are traded in Real Estate stocks and not invested in stocks of companies, whereas Mutual funds pool funds from the investors to invest in fixed income.
From 1 July 2020, Floating Rate Savings Bond 2020 (taxable) has been launched by the Central Bank. Unlike the previous 7.75% savings bond 2020, the interest rate on these new floating rate bonds is subject to reset every six months.
Individuals and Hindu Undivided families (HUF) can invest in this scheme. The minimum amount to invest in this scheme is Rs. 1000 and in multiples with no maximum limit. The tenure for the bond is seven years. The interest is taxable as per the suitable income tax slab and TDS will be applied on interest income.
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