NRI Investment

Over the last two decades, India has surely witnessed massive developments. It is because of this, the country has also attracted foreign direct investments. This also has prompted the non-resident Indians to take into account India as one viable destination when it comes to investing.

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The government of India is creating more business every day, which is an ideal opportunity for the NRIs to invest in the country. Just like every investor, the NRI investors need to explore the options and choose the one that fulfils not only the financial objectives but suits the risk profile as well.  A majority of the NRIs are drawn towards investing in India because they can easily diversify their portfolio with Indian investments. The NRI investment is done to create a nest egg for the family back at home or earn better returns by simply investing in the fast-expanding economy.

Who is an NRI?

In simple words, an NRI stands for Non-resident Indian. This means that a person who is an Indian citizen; however, lives overseas.

The standing of a person whether resident or a non-resident is on the premise of the staying period in India. This period is counted in the number of days for every financial year commencing from April 01 to March 31, which is referred to as the previous year under the IT Act.

An individual will be considered as the ’Resident in India’ in any previous year if the individual is in India for:

  • A minimum of 182 days in that year, or
  • A minimum of 365 days during the 04 years preceding that year and a minimum of 60 days in that year.

An individual who does not meet the mentioned above conditions will be considered as the ‘Non-resident’ in that previous year.

Why Should an NRI Invest in India?

When it comes to investment it is about allocating money to acquire future advantages or say a return in terms of finances. Investing essentially ensures present and future long-term stability in terms of finances. Life is uncertain therefore it is important to secure the financial future. The ideal way to do this is to invest in the correct sector.

The following are some of the key reasons for NRI investment in India:

  • Retirement Planning

    Retirement planning is important. The sooner an individual plans the retirement the better it is going to be for a secured future. To lead an easy and comfortable retirement life, it is important to create a corpus shield that would fund it all later. The total investment amount an individual creates now will govern old age. It is important to put money in various forms of investment that ensures a secured retirement plan. The sum that an individual saves and invest will determine the living standard that one will lead when they retire. Choose wisely the investment plans for NRI in India.

  • Build Financial Asset

    Investing enables to grow the financial wealth and builds up the financial assets. For example, buying a property means that it can be rented out to earn rental income. This can be used as security while applying for loans. The secured loans obtain a lower rate of interest that ends with cheaper loans. The right investment for NRI in India will simply help to grow the financial assets rapidly.

  • Send Money to Family

    Sometimes the present salary is merely not enough to help the immediate dependents. Investing in NRI investment options in India assures more income to spend. The extra income can be sent to the family back home and they can use it as per the need.

  • Get Returns

    To earn money is not an easy task. The money that is used in the right way will make more money. And it is prudent that this hard-earned money works in the right direction. Therefore, investing is the best option as with time the returns will multiply from the investment. Investing will grow according to the rate of interest or growth on the NRI investment in India. Investors expect high returns by risking investments. When it comes to a low-risk investment it will fetch low returns just like a high-risk investment is going to fetch high returns. It is important to use the money wisely and incur good returns in the future.

Types of NRI Account the NRIs Can Operate in India

The following are the types of bank accounts that an NRI can easily open in India:

  • NRE Account

    The NRE stands for Non-resident (External) Rupee Account. This is a type of bank account that is opened by the NRI to keep foreign earnings in India.

  • NRO Account

    The NRO stands for Non-resident (Ordinary) Rupee Account. This is a type of bank account that is opened by the NRI to manage the earnings that are earned in India such as pensions, dividends, rent, interest and so forth.

  • FCNR Account

    The FCNR stands for Foreign Currency (Non-resident) Account. This is a type of bank account that permits the NRIs to save overseas money in the form of foreign currency in a term deposit.

Best NRI Investment Options For the NRI in India 2021

The key intent behind the investment is to secure the finances. The NRIs working overseas can invest the hard-earned money in India without physically residing in the country. Here is a run down to the best investment options for the NRI in India 2021:

  • Bonds and Non-convertible Debentures

    Non-convertible debentures are another good investment option for the NRIs in India. These are long-term investments that are offered by the companies mostly in the form of fixed deposits, which offers a high return when compared to an FD. The investments can be made via NRO or NRE bank accounts. The bonds issued in India either are the Perpetual Bonds or Pubic Sector Undertakings. The PU bonds have a fixed date of maturity whereas the Perpetual Bonds have no specific date of maturity. Therefore, it can be treated as equity and not as debt. During economic crises, these bonds are a viable solution for money-raising.

  • Certificate of Deposits

    The NRIs can also opt for the certificate of deposits as an investment. The Indian banks issue the certificate of deposits for 07 days up to one year, which is the short term for the retail investors.  The certificate of deposits is negotiable and guarantees repayment of the principal sum with the fixed returns.

  • Direct Equity

    The NRI investor can also invest in the Indian stock market. Such investment can be made via the Portfolio Investment Scheme. Before that, the NRI needs to open the NRE or NRO account. The NRI investor should also open the Demat and trading account when dealing in the equity market in India.  

  • Fixed Deposits Bank Accounts

    One of the easiest investment options for NRI investment in India is this option. This service is offered by banking and non-banking agencies. Under this option, the individual can deposit the money for a fixed period for a high-interest rate compared to any of the other savings accounts. However, it can only be withdrawn upon maturity. Under certain circumstances, premature withdrawal is allowed at the penalty. The NRI investment in India in the fixed deposit has been categorized under the following main types:

    NRE Account

    This type of account is usually maintained in Indian rupees where income earned is invested outside India. Such an account is maintained in the form of recurring, current, savings or FD. The rate of interest of such accounts also varies and depends upon the term deposit. The earned interest within such an account also remains non-taxable in India.

    NRO Account

    This is a kind of savings account wherein the individual can manage and maintain earned income in India. For instance, rent from the property owned, dividends and so forth. Such an account can be maintained in form of savings, current or recurring.

    FCNR Account

    The FCNR accounts are the best investment options for NRIs who are looking forward to retaining the money in a foreign currency. The principal sum and earned interest also are completely repatriable. The risk of foreign currency exchange is 0 with the guaranteed higher return. The rate of interest is determined by the currency deposited in the account. Various currencies will yield different rate of interest.

  • Government Securities

    The NRIs have the option to invest in government securities. The RBI has started a separate medium that is called the ‘Fully Accessible Route’ to help the NRIs to invest in certain government securities with effect from 2020, April 01. Government securities are low-risk investment wherein a bond or debt obligation is issued by the government with a promise to repay upon maturity.  This could either be a short or long-term investment. Moreover, the federal government issues treasury bills that are short-term investments. The maturity term of these securities ranges from days to fifty-two weeks. The NRIs are then paid at face value upon selling the securities and permitting the investors to make a profit. The following are some long-term government securities:

    Floating Rate Government Bonds

    As per the market conditions, the interest rate will change.

    Fixed-Rate Government Bonds

    The rate of interest is fixed.

    Capital Index Bonds

    The base payment will rise and falls with the price index consumer.

  • Mutual Fund

    Mutual funds are another investment options that an NRI can consider. Mutual funds have a professional approach in comparison to any other investment plans. Mutual funds investment is managed by professionals. However, mutual funds are subject to market risk but the returns are greater than any other investment option. The NRIs can easily invest in the mutual fund by simply opening the NRO, NRE or FCNR accounts.

  • National Pension Scheme

    The National Pension Scheme is ideal for retirement. Any individual who is between the age of 18 years and 60 years can easily invest the money in NPS. The maturity benefits are taxable and upon withdrawal, the funds are taxable as well. With its set of rules, the NPS has the following types of accounts:

    NPS Tier-I Account

    It is a pension account with specific limitations upon withdrawal. 20% of the withdrawals can be made before attaining 60 years of age. The remaining 80% is used to buy an annuity from a life insurer. After the retirement age, 60% of the contribution then it can be withdrawn. The reaming 40% is used to buy an annuity.

    NPS Tier-II Account

    The NPS Tier-II account is more flexible when compared to the Tier-I account. Besides, there is no limit on the withdrawal.  The PFRDA appoints the fund manager who manages such accounts. Moreover, the individual has the liberty to choose the fund manager while opening the NPS account.

  • Real Estate

    When it comes to the NRI investment in India another preferred option is real estate. India of late has become a viable investment destination and has been garnering global attention. Nothing could be more surreal for the NRIs than owning a property in their home country.

  • Public Provident Fund

    The Public Provident Fund is another safe investment options for the NRI in India 2021. The Public Provident Fund is a government-backed scheme and comes along with a lock-in period of 15 years. The maximum amount that can be invested in the PPF is Rs 1.5 lakh a year. The Public Provident Fund also offers the tax deduction under Section 80C of the IT Act.

    India is a developing country and therefore attracts the attention of the NRIs to invest for a secured future. NRI investment in India will also help them to stay connected to the home ground and help the economy.

    Choose the best investment options for the NRI in India 2021 not only for a secured future but also for handsome returns. The choice will depend upon the investment objective, risk appetite and return expectations. Create a portfolio of various asset classes, which complements each other and this will help an NRI to reach the objectives.

Written By: PolicyBazaar - Updated: 31 August 2021
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