Best Short Term Investment Plans for NRIs

Of all the countries with the largest population of their citizens living abroad, India is one. In the last count, it is reportedly over 30 million. NRIs have contributed tremendously towards the economic health of our country. It is important to understand that you know about the perfect investment opportunities for NRIs in India.

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Familiarity with the relevant expressions regarding NRIs is also important; what it means and the amenities they are offered by FEMA.

Who is a Non-Resident Indian (NRI)

Under the Foreign Exchange Management Act (FEMA), if you stay in India for 183 days or more during the preceding year beginning 1st April to 31st March of the current year, is a resident. If you do not fulfill this condition  and you  stay in India for less than 183 days in the corresponding period, you shall be considered to be an NRI (Non-Resident Indian): and

As per the Income Tax Act, 1961, if you stay in India for 182 days or more in the current financial year, or you have stayed in India for 60 days or more in the previous financial year and 365 days or more in the preceding four years, you are deemed to be a resident. In case you do not satisfy any of the above criteria, you are deemed to an NRI.

The implication of being a Non-Resident Indian

As a Non-Resident Indian (NRI), you may be a resident abroad for employment, trade, for occupation, on posting with any Foreign Government / Agency, bureaucrat on deputation or pupil to qualify for all the facilities available to NRIs, subject to FEMA regulations.

Who is a Person of Indian Origin (PIO)                                                                        

A citizen of countries excluding Bangladesh and Pakistan is a PIO if:

  • If ever the person held an Indian passport; or
  • Under Citizenship Act 1955 or by the Constitution of India, if any of the person’s parents or grand-parents had been a citizen of India; or
  • A person referred above is a spouse of an Indian Citizen.

Who is a Returning Indian?

If any Indian who was a nonresident earlier and has now returned for permanent residence in India is a Returning Indian, he or she is entitled to open an RFC account.

Investment Avenues for NRIs                                                               

The array of best investment options for NRIs is very multifarious and lucrative. You're earning in foreign exchange is welcome in India. The offers, therefore, are attractive for your investment. You must fulfill some elementary rules to avail of the various available options. You have plenty of opportunities to translate your foreign exchange into Indian assets.  But as a beginning, you need to ascertain your economic objectives. They are:

  • Ensure future financial security by building a corpus.
  • Earn the good returns on your investments in the short term.
  • To build economic assets in your country of origin.
  • To plow your money back to your kith and kin who live in your native country.

You can approach systematically for achieving them once your priorities and goals are settled,

Bank’s Deposit Accounts

NRIs are eligible to open accounts with all banks. They could be in the form of Saving Deposit, Current Deposit or Fixed Deposit Accounts replete with unique and attractive inclusions. These accounts are named RFC, NRO, NRE or FCNR accounts.

  • Savings Accounts:

This category comprises of three account types.

  • Non-Resident Ordinary (NRO) Account: You can open this single or joint INR account. The deposits and what you earn from this account are taxed in India, but you can repatriate a maximum of 1 million USD.
  • NRE (Non-Resident External) Account: You can open this single or joint INR account. The balance in and the earning from this account is exempt from taxes in India can be fully repatriated.
  • RFC (Resident Foreign Currency) Account: As a Returning Indian, you are free to open this account maintained in US Dollar (USD) or sterling Pound (GBP) only. The money can be repatriated and is exempt from tax in India.

 

  • Current Deposit Accounts:

This category has two types of account.

  • NRO (Non-Resident Ordinary) Account: You can open this single or joint INR account. The balance and what you earn from this account is taxed in India, and you are allowed to repatriate maximum to the tune of 1 million USD.
  • NRE (Non-Resident External) Account: You can open this INR account as single or with a joint holder if required. The money and earning from this account is free from taxes in India, and you can repatriate it fully.

 

  • Short Term Deposit Accounts:

This category has four types of account.

  • NRO (Non-Resident Ordinary) Fixed Deposit Account: You can open this single or joint INR account. You can repatriate the initial deposit to the tune of 1 million USD, and the earning from this account is subject to tax in India.
  • NRE (Non-Resident External) Fixed Deposit Account: You can open this INR account singly and also jointly with another holder if necessary. The money and the earnings are free from taxes in India. It can be totally repatriated.
  • FCNR (Foreign Currency Non-Resident) Fixed Deposit Account: Accounts maintained in foreign currencies like USD (US Dollar) or GBP (Sterling Pound), CAD (Canadian Dollar), AUD (Australian Dollar) and JPY (Japanese Yen) only. NRI are free to open this account. Earning is free of taxes in India while you can repatriate the initial deposit.
  • RFC (Resident Foreign Currency) Fixed Deposit Account: This account is opened in US Dollar (USD) or Sterling Pound (GBP) only. Your earning from this account is free from taxes in India while the initial investment can be repatriated. Returning Indians are permitted to open this account

Liquid Funds and ultra-short-term funds

Your short-term investment plan can draw you to liquid funds and ultra-short-term funds. Liquid funds are short-term investment in the true sense for they have a minimum holding period of about two weeks and an average debt instrument maturity happens within 91 days.

Additionally it will suit you further as it is a low-risk option with no exit load. On the other hand, Ultra-short-term funds come with a minimum holding period of three months and can have a maturity period ranging from a week to 18 months. On the flip side, it offers higher returns than liquid funds, but there may be provision for charging for exit load for the initial period of investment.

Mutual Funds

You are mandatorily required to open permitted any of the NRI accounts in banks for investing in Mutual Funds. This remains of the primary criterion. It is compulsory to route your investment through one of the named accounts in INR. The proceeds of redemption and monies are also transferred to these accounts. You are subject to Tax Deduction at Source (TDS) which is not applied to Indian residents.  It is worthwhile to invest considering the multiplicity of offers. However, the magnitude of Mutual Funds portfolio to invest, require thorough analysis and understanding the forces at play and your risk appetite and financial goals, especially when you are looking for short-term investments.

Global Mutual Funds

NRIs would be reviewing the developments in the country of adoption or where they are working. An option open to them is an investment in Global Mutual Funds in India that invest in the country where they are working to earn handsome returns. An NRI working in the USA can look for Franklin India FF US Opps Fund or ICICI Pru US Bluechip Equity Fund or Motilal Oswal Shares NASDAQ 100 ETF.

In the case of an NRI who has high-risk appetite and want to invest in high return investment plans based on their gut feel that such funds would perform well, can choose to invest in good global mutual funds.

Direct Equity

Investing in Shares or ETFs in India as an NRI is lucrative in ensured high returns instrument, both in the long and short terms. But the risk is high considering the volatility of the markets. There are certain riders that need compliance by you to avail of this lucrative option:

  • An RBI approval is required to trade in shares in India as you are governed by their Portfolio Investment Scheme (PIS).
  • You are refrained from investing more than 10% of paid-up capital of any Indian Firm.
  • A Demat Account is a must to retain the shares.
  • A Dealing Account with SEBI registered Broker is a must.
  • You must open a relevant Bank NRI Account.
  • A stock broker must handle all your business deals.
  • You must confine your trade in the RBI permitted shares only.
  • You are not permitted to short sell intraday.
  • You can deal only in delivery mode.
  • As a prerequisite to selling, you must first possess the stocks.

Real Estate

Real estate sector is an attractive option to invest. It offers a vast scope not only by its magnitude but also because of hefty returns in the short term. It is a favorite investment zone for many NRIs. Investments in the booming real estate business have been a lure for many an NRI, who pine to own property in their land of origin for emotional reasons. It pays to own property in your native country. It also provides you with financial security because of the assured rise in prices. Both housing and mercantile properties may attract your investment. But you are barred from purchasing agricultural land and plantations.  However, sale and transfer of funds abroad is subject to compliance of  FEMA Regulations. It is prudent to obtain the help of a professional if you are planning to sell your property and repatriate the funds.

Bonds and Government Securities

A good option for short-term investment for NRI is in the form of Bonds and Government securities. From time to time, the Government, as well as many mercantile firms, proposes expansion projects, for which they raise funds. To complete these projects, they need to borrow money by floating Bonds and Securities. You become a lender and earn fixed returns if you consider investing in these bonds and government securities. You can easily transfer the funds abroad if you lodge your deals in bank’s NRE or NRO account.

Certificate of Deposits

Certificates of Deposit are invariable money market instruments issued as Promissory Notes or in Demat form. You may opt to subscribe to these instruments. The maturity range of a CD spans anything between 7 days and one year. CDs yield higher returns compared to Bank Deposits, and it is possible to meet your short-term financial goal.

NRIs in India- Check List for Investment

You must estimate the several investment avenues available and go for the ones that satisfy your objective and suitability in the light of your short-term needs. The investment rules of your adopted country must receive your thorough attention as an informed NRI investor, lest you be caught on the wrong foot. Tax regulations require adequate estimation. The important aspects point to be factored in are:

  • Income tax estimates vis-a-vis your earnings on investments in India, eg. In real estate, shares, securities, etc. about NRI rules is a primary necessity.
  • TDS parameters and liabilities on earnings generated on assets in India in accounts, like interest accrued in NRO Account.
  • Scan the fine print of Double Taxation Avoidance Agreement if any, about India and your adopted country.
  • You are prohibited from investing in NSC, PPF, Senior Citizen Scheme, Post Office Saving Scheme, etc.

 

Bottom Line:

As an NRI, you have a special status and a worthy role to play in the development of India. India is one of the world’s swiftest growing economies, you have an excellent reason to explore the possibilities of investment. India is reputed to be a reliable destination for foreign investments with the assurance of safety. With a wide range of options and avenues because of the safety, liquidity and steady returns, it calls upon you to invest, even in the short term.

Written By: PolicyBazaar - Updated: 01 July 2021

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