Best Investment Options for NRIS in India

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In today’s day and age, India is rapidly mushrooming as an industrial hub. As the government of India is offering flexibility and adequate stability to the investors, more and more NRIs are becoming interested to invest in the Indian market. Making an investment in India for NRIs is beneficial in many ways and with a wide range of investment options available in the market, NRIs can always to choose to invest in the market as per their financial goal, risk appetite, and liquidity requirement.

Further, in this article, we will elaborately discuss some of the best investment plans for NRI in India.  

Best Investment Options for NRIs in India.

Fixed Deposit      

 Investing in fixed deposits is not only a good investment option for Indian citizens, but it is also a lucrative option of investment for NRIs. The NRIs can open their FD with the NRO, NRE or FCNR account. These are the three types of bank account NRIs can open in India. The rate of interest applicable to the bank FDs depends on the time period of deposit. Generally, NRIs expect to earn interest ranging between 6% -7% on the balance of the account. Moreover, if the NRI is a senior citizen then they can get an extra interest of 1% on the balance amount.

As one of the safest investment option for NRIs, fixed deposits are best suitable for individuals who have a low-risk appetite and want to invest for a long-term period.

Equity        

Another beneficial investment options for NRIs are equity schemes. NRIs can invest directly in the Indian stock market under the Portfolio Investment Scheme (PIS) of RBI.  In order to invest directly in the Indian stock market, the NRIs are required to have NRO or NRE bank account, a demat account and a trading account with SEBI registered stock broker. However, it is important for NRIs to keep in mind that the maximum investment amount in the stocks of the Indian company cannot exceed 10% of the paid-up capital.

Moreover, for NRIs, it is very important to note that, they are not allowed to carry out short selling in India and intraday trading. This means that the NRI should own the stocks before selling it.

Mutual Fund   

Nowadays, the mutual fund is growing as a popular choice of investment option in India. With higher returns on investment and a wide range of fund options available in the market, more and more people are opting to invest in a mutual fund scheme.  In a mutual fund scheme, the asset management companies pools the money from the investors and invest it various financial assets with an objective to accumulate wealth in a long-term and provide higher returns on investment.  According to the risk appetite and financial objective of an individual, one can choose to invest in different mutual fund options available in the market.

However, for NRIs, mutual fund investment comes with some limitation because of Foreign Accounts Tax Compliance Act (FATCA) regulation.  In order to invest in mutual fund in India, it is mandatory for NRIs to have an NRO or NRE account. Moreover, the NRIs are required to give draft or rupee cheque from their NRO/NRE account. The NRIs can make an investment in mutual fund online in Indian currency and not in any foreign currency.  At the time of fund maturity, the redemption amount is paid in Indian currency to the investors, either through the process of cheque or is credited directly to the investor's account.  However, there are some countries which don’t allow mutual fund investment in India for NRIs.

Besides this, the tax liability is the same for NRIs as well as the resident Indians, the only difference for NRIs is that the tax is deducted at source (TDS)

 

Equity Mutual  Fund

Debt Fund

Short-term Capital Gain (STCG)

15% taxable

Taxable according to income tax slab rate.

Long-term capital gain (LTCG)

10% taxable

10% taxable without indexation and 20% taxable with indexation.

Public Provident Fund (PPF)  

Public Provident Fund is a safe investment options for NRIs same as bank FDs. As a government-backed option of investment, PPF is one of the safest investment options available in the market. The NRIs can also invest in PPF account, up to the maximum limit of Rs.1.5 lakh in a financial year. As compared to banks FD, PPF accounts are considered more tax efficient. However, PPF account comes with a lock-in period of 15 years, this is best for individuals who want to make a long-term investment and are thinking of retirement planning.

National Pension Scheme (NPS)  

As an effective tax-saving investment option, the NRIs can also consider investing in the National Pension Scheme (NPS). National Pension Scheme are government backed scheme which provides proper retirement planning to the individual and is considered as the safest investment option.  In the NPS scheme the maturity benefit is tax exempted under section 80CCD of Income Tax Act.  The NRIs between the age group of 18-60 years are can open a national pension scheme. NPS of one is one of the best investment options for NRIs who want to have an easily accessible, cost-effective and tax-efficient way of investing the money.

Real Estate   

For most of the NRIs, investing in the real estate sector is traditional and one of the most preferred investment method. For NRIs having a real estate property in India is considered as a valuable asset. Moreover, with rapidly growing property rates in India, the financial appreciation of the house also provides a sense of financial security. By investing in house property in India, an NRI can earn a very higher return on investment by letting it out to the third party.

As one of the best options of investment for NRIs, they can purchase both commercial and residential property and there is no restriction on the number of properties owned. However, NRIs cannot purchase agricultural lands or farmhouse.

Besides this, the Foreign Exchange Management Act imposes some restrictions on the selling of property, specifically in case of repatriation transaction. Moreover, the NRIs can make any real estate purchase only in Indian rupee.

Points to Consider for NRIs before Investing in India   

As an NRI, if you want to make an investment in India, then here is the list of important points that should be kept in mind before making the investment.

  • The NRIs are liable to pay income tax on the income they have earned in India.
  • The income taxable can be in the form of:
  1. Income earned in the form of salary in India.
  2. Profit earned on the sale of investment such as shares, property, securities, etc.
  • TDS ( tax deducted at source) on payments made to the NRIs. For example- If a Non-Residential Indian sells property in India, then the buyer will deduct TDS while making payment. Similarly, the banks also deduct tax on the interest earned in the NRO account.
  • There are some mutual fund houses which do not accept deposits from NRIs based in Canada/USA. Thus, before making an investment in any mutual fund scheme, it is important to check with the respective AMC/ fund houses.
  • It is important for NRIs to know that the same income cannot be taxed in two different countries. In order to avoid double taxation, the NRIs can check the Double Taxation Avoidance Agreement (DTAA) in between the countries.

Closing Thoughts

So as an NRI, if you are planning to invest in India, then you can consider investing in these investment options. While making an investment in these financial instruments according to your own requirement and suitability, you can ensure to gain high ROI in the long term and fulfill the financial objectives of life. However, before making any investment make sure that you go through the relevant documents and research in a detailed way.