Top NRI Investment Plans in India

Welcome to our blog post on NRI investment plans in India! If you are a Non-Residential Indian (NRI) looking to invest your hard-earned money back home, then you’ve come to the right place. In this article, we will explore the various investment options available for NRIs in India and help you make informed decisions about growing your wealth. So let’s dive right in and discover how you can make smart investments that align with your financial goals!

NRI Investment in India: Who are NRIs?

An NRI refers to an Indian citizen who resides outside of India. However, for tax purposes, an individual is considered an NRI only if they have spent over 182 days outside of India within a financial year, which runs from 1 April to 31 March. Additionally, an NRI can also be someone who has relocated to a foreign country for employment or business purposes. If an individual meets the NRI criteria for one or more financial years, they are not required to pay income tax in India for those specific financial years.

Top NRI Investment options in India

India’s rapid industrial development in recent years has resulted in a significant influx of Foreign Direct Investments (FDI). As a result, investment opportunities in India have become highly valuable for NRIs. With a plethora of investment options available, it is understandable if NRIs feel overwhelmed. However, here are the best NRI investment options in India:

Fixed Deposit
National Pension Scheme
Equity
Mutual Funds
Real Estate
Public Provident Fund
Bonds and non convertible debentures
Pre IPO investment

Fixed deposit

Fixed Deposits (FDs) are considered a relatively safe NRI investment option in India, offering a fixed-interest income. Here are three types of NRI Fixed Deposit Accounts available:

1. Non-Resident External (NRE) Fixed Deposit:

By opening an NRE FD account, NRIs can deposit their foreign currency earnings, which will be converted to Indian rupees. Both the principal amount and interest earned can be fully repatriated to their country of residence if desired.

2. Non-Resident Ordinary (NRO) Fixed Deposit:

NRIs can open an NRO Fixed Deposit account to manage and save their income generated in India in Indian Rupees. This income may come from various sources such as dividends, rental income, and pensions. However, interest earned over ₹10 lakhs is subject to taxation in India at approximately 33%, including surcharge and cess.

3. Foreign Currency Non-Resident (Banks) Fixed Deposit:

FCNR Accounts are suitable for NRIs looking to invest and hold funds in India. These term deposit accounts allow premature withdrawal after one year. Opening an account involves transferring funds from an NRE Account. The interest earned is tax-free, and both the principal amount and interest can be fully repatriated. Additionally, an overdraft facility is available.

Therefore, NRIs have the option to choose FCNR Accounts to save in foreign currencies.

National Pension Scheme

NPS for NRIs pertains to the National Pension System (NPS) specifically tailored for Non-Resident Indians (NRIs). NRIs aged between 18 and 60 years have the opportunity to open an NPS account with an initial contribution of at least ₹500 and an annual minimum contribution of ₹6,000, while adhering to the KYC (Know Your Customer) requirements.

The NPS is a voluntary retirement savings scheme introduced by the Government of India. It aims to assist individuals in building a retirement income by encouraging them to contribute towards their pension during their working years. NRIs can also participate in the NPS and enjoy the advantages of this pension scheme by making regular contributions and accumulating savings for their retirement. The funds deposited by NRIs are managed by selected pension fund managers, who invest the funds in various securities based on the investment criteria specified by the Pension Fund Regulatory and Development Authority (PFRDA).

Equity

Under the Portfolio Investment Scheme (PIS), Non-Resident Indians have the opportunity to make direct investments in the Indian stock market.

For equity investments, NRIs are required to have the following accounts:

1. Non-Resident External (NRE) Account

2. Non-Resident Ordinary (NRO) Account

3. NRI Demat Account

4. NRI Trading Account with a registered broker

It’s important to note that income derived from dividends and capital gains earned by NRIs through stocks and equity-oriented mutual fund schemes are subject to taxation in India.

Mutual Funds

NRIs have the opportunity to invest in mutual funds in India, provided they adhere to the regulations specified in the Foreign Exchange Management Act (FEMA).

Several fund houses facilitate mutual fund investments for NRIs residing in the United States and Canada. Some of these fund houses include:

Aditya Birla Sunlife Mutual Fund
L&T Mutual Fund
SBI Mutual Fund
UTI Mutual Fund
ICICI Prudential Mutual Fund
Sundaram Mutual Fund

These fund houses offer investment options in mutual funds to NRIs, allowing them to participate in the Indian mutual fund market.

Real Estate

NRIs have the opportunity to invest in real estate properties in India, both residential and commercial, which can yield substantial returns over the long term. However, it’s important to note that the purchase of agricultural land is not permitted for NRIs.

For property transactions in India, NRIs can utilize the following types of bank accounts:

Non-Resident External Account (NRE Account)
Non-Resident Ordinary Account (NRO Account)
Foreign Currency Non-Resident Account (FCNR Account)

These bank accounts allow NRIs to conduct financial transactions related to real estate, such as property purchases, rentals, and leasing activities in India.

Public Provident Fund

If you have an existing Public Provident Fund (PPF) account that was opened when you were an Indian resident, you can continue to operate it as an NRI. However, as an NRI, you are not eligible to apply for a new PPF account. Additionally, it’s important to be aware that you cannot extend the maturity period of a PPF account beyond the initial 15 years.

Bonds and Non convertible debentures

As an NRI, you have the opportunity to invest in bonds and Non-Convertible Debentures (NCDs) in India. Additionally, you can also invest in government securities through NRI bonds in certain categories without any ceiling limit.

Here are the three main categories of bonds available for NRI investment:

1. Public Sector Unit (PSU) Bonds:

By investing in PSU bonds, you provide a loan to a PSU company, which commits to paying interest upon maturity. The interest rate on PSU bonds depends on the creditworthiness of the issuing PSU company.

The interest earned on PSU bonds is tax-free under section 10 (15) (IV) (h). If these bonds are sold after holding them for more than three years, the investment is subject to a 20% tax. NRIs can also claim tax deductions by investing in capital gain bonds issued by REC and NHAI under section 54 EC.

2. Non-Convertible Debentures (NCDs):

NCDs are considered secure and long-term investments as they are backed by the assets of the issuing company. NRIs can invest in NCDs to earn returns.

3. Perpetual Bonds:

Perpetual bonds do not have a fixed maturity date. Instead, the issuing company commits to paying the investor a predetermined amount of yearly returns.

In summary, NRIs have the option to invest in PSU bonds, NCDs, and perpetual bonds, providing them with various avenues for bond investments in India.

Pre IPO investment

In the pre-IPO market, NRIs have the opportunity to purchase and sell shares of companies before they are listed on public exchanges. This is facilitated through investment firms that handle the transaction. When you purchase unlisted shares, they are deposited in your NRI Demat account.

Investing in pre-IPO shares can potentially yield significant gains if the company performs well. However, it’s important to note that these investments carry more risk compared to listed shares, as the pre-IPO market is less regulated than the regular equity market.

The Bottom Line

NRIs have a wide array of investment opportunities in India, such as fixed deposits, the National Pension Scheme (NPS), equity, mutual funds, real estate, the Public Provident Fund (PPF), bonds, non-convertible debentures, and pre-IPO investments. It is crucial for NRIs to have a clear understanding of the relevant laws and restrictions before making any investment choices. With a diverse range of options at their disposal, NRIs can effectively diversify their investment portfolio and make informed financial decisions to safeguard their future.