Indian Government Schemes for NRI

To help NRIs save and invest, the government of India provides them with a diverse range of opportunities to save and invest. This article explores some of the Indian government schemes for NRIs.

Government Investment Schemes for NRI

The government of India is offering NRIs the following range of options for investment: 

• Multiple fixed deposit accounts like Non-Resident Ordinary Account (NRO), Non-Resident External Account (NRE) and Foreign Currency Non-Resident (FCNR)
• Mutual funds (Equity, Debt, and Balanced)
• Direct stock or equity investment
• Government Bonds and Government Securities

All these schemes will help the NRIs plan their future finances efficiently, which will help them achieve their goals. These investment options also help them plan retirement.

Fixed Deposit for NRIs

A fixed deposit is an investment instrument where NRIs can deposit their money and receive fixed interest. The interest rates may vary for different banks, which NRIs receive periodically. However, you cannot withdraw money from your fixed deposit account prematurely if your bank does not facilitate it. A penalty is imposed on premature fixed deposit withdrawals.

Three types of fixed deposits for NRI are:

1. Non-Resident External Account (NRE)

   In this type of fixed deposit account, your deposit is kept in the form of rupees. The interest earned is tax-free. The interest rates vary for different banks and the principal amount.

2. Non-Resident Ordinary Account (NRO)

   NRIs usually use this type of account to control their income. This type of account has a limit on the amount that you can transfer from your Non-Resident Ordinary Account (NRO) to the account in your residence country. The interest earned from an NRO account is taxed at the rate of 30%.

3. Foreign Currency Non-Resident (FCNR)

   NRIs use these types of accounts to store foreign currencies. This helps the depositors to avoid currency fluctuations that take place in foreign exchange markets. The interest rate for these accounts depends on the type of deposited currency. 

   With US dollars, depositors generally get 2% - 3%. These accounts are liquid as you can withdraw money at your convenience. The interest earned on the deposit is tax-free.

Government Bonds and Securities

NRIs are also eligible to invest in Government bonds and securities such as Treasury bills or T-bills, PSU bonds, and G-Sec Bonds. In simple terms,  bonds are loans that government or PSUs take from different investors such as individual investors, HNIs, NRIs, Mutual Funds, and insurance companies.

The government then repays these loans by redeeming the bond, including the interest in the form of coupon payments to the investors/lenders. Government bonds generally have three types:

• Fixed-rate government bonds: These bond types have a fixed coupon rate.
• Floating rate government bonds: They have a fluctuating coupon rate depending upon the current market situation.
• Capital index bonds (CPI bonds): The coupon payouts are adjusted according to the inflation in India.

Mutual Funds

Mutual funds are a type of investment tool formed by Asset Management Companies (AMCs) or Fund Houses. These are pools of investments from different individuals, corporate houses, NRIs, and HNIs. This fund is then driven or operated by fund managers who are professional money managers. They invest this pool of funds into different stocks and bonds and other investable securities.

Mutual funds have a higher risk profile as compared to a fixed deposit account but mutual funds can generate a higher rate of return than an FD. But also, mutual funds are strictly regulated by a government authority named SEBI or Securities Exchange Board of India.

Different Types of Mutual Funds

• An Equity Mutual Fund invests at least 65% of its investor's money in equities or stocks.
• A Debt Mutual Fund invests its investor's money in debt markets, money markets, or in other fixed-income instruments such as treasury bills, government bonds, and PSU bonds.
• A Balanced Mutual Fund/Hybrid Mutual Fund invests its investor's money in both equity and debt instruments, which helps balance the risk of the portfolio.

To invest in mutual funds, an NRI will need an NRE, NRO, or FCNR account in India to be able to invest. These accounts will help to initiate the investment process and also will help in the payout process.

Few government companies that have mutual fund investment facilities for NRIs are:

• SBI Mutual Fund
• UTI Mutual Fund

NRI Tax Rates For Investments in India

NPS for NRIs

NPS is a retirement savings scheme. NPS subscribers are allotted PRAN or Permanent Retirement Account Number. This retirement savings account works based on defined contributions. The benefits to an NPS subscriber depend on the volume of their contributions, returns, and the total term.

• The minimum contribution on opening the NPS account is ₹500.
• The minimum amount per contribution is ₹500.
• The minimum contribution per annum is ₹6,000.

Benefits of Investing in India for NRIs

Following are the benefits for an NRI investing in India:

1. Financial Planning

   Investing builds a habit of saving and growing your money. It can help you achieve goals like foreign vacations and buying your dream car or house. Investing habits will also help you to plan your child's future. To achieve all these, you must start saving and must invest those savings intelligently.

2. Income Generation

   Investing your money in India in instruments such as fixed deposits or mutual funds can generate a passive income for you. You can either send it to your loved ones or decide as per your convenience.

3. Higher Returns

   It is difficult to earn a decent interest income if you live in the USA. To counter it, you can invest in India because India has a higher interest rate than the US, and India is an emerging and rapidly growing economy.

In Conclusion

The Government of India has taken some major steps to launch NRI schemes and welcome foreign investments. This initiative is beneficial for both India and the NRIs. It will help the NRIs to save and grow their hard-earned money and will provide them with an opportunity to earn better returns.

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