NRIs have a diverse set of needs. While
some aim to get higher returns, others may want to build assets for their
family. Let us look at some of the investment options for NRI investors.
Bank fixed deposit
Fixed deposits have been the favourite
investment alternative for NRIs. There are three main categories of NRI bank
accounts: NRE (non-resident external accounts), NRO (non-resident ordinary
accounts) and FCNR (foreign currency non-resident account).
· NRE (non–resident external) fixed
deposit account: NRIs can open this account for
earning interest on their foreign savings. The currency of investment is rupee.
As an added bonus, the interest earned is not taxable in India. Upon maturity,
the complete amount can be transferred back to the foreign country. NRIs can
avail of a loan against the corpus held in this account.
·
NRO (non-resident ordinary
accounts) fixed deposit account: Here also
the currency of investment is rupee. However, there are a few key differences
between NRE and NRO accounts – the interest earned is taxable, there are
restrictions on the amount that can be sent back to the foreign country; also Investors
may be able to repatriate only the interest earned on NRO FD account not the
principal. Due to its many restrictions, this is not an ideal option for investor
if he/she wants to transfer the money back to the foreign country. However, NRO
accounts come in handy if the Investors wants to open a joint account with an
Indian resident or needs money for transaction in India.
· FCNR (foreign currency
non-resident) fixed deposit account: In 2013,
to build up India’s foreign currency reserves, RBI launched FCNR accounts.
These accounts are held in foreign currency so that the investor does not have
to bear currency risk. Both the interest and the principal can be transferred
back to the foreign country. There is no tax levied by India on the interest
earned in these accounts.
Mutual funds
Another popular investment avenue
through which NRI Investors can take exposure to Indian equity and debt markets
is mutual funds. Investment in mutual funds is to be made in rupees. Returns
earned on the investment are taxable.
Post FATCA regulations residents of USA
and Canada can only invest with a few fund houses as most fund houses do not
allow such investments due to stringent reporting norms. However, Investors
living in any other country can invest in schemes of any fund house of their
choice.
Direct equity & debt market
investment
Under the PIS (portfolio investment
scheme) of RBI, NRI investors can purchase or sell equity and debt securities
on a recognized stock exchange. NRIs need prior approval from RBI before
transacting in the securities market. An individual can only register for one
PIS account. For repatriable transactions investments need to be made from Investor’s
NRE savings account and for non-repatriable transactions investments need to be
made from NRO savings account.
Equity:
NRIs can take exposure to promising
Indian businesses through direct equity investment. However, the investment
universe is restricted. RBI publishes a list of companies in which NRIs can
invest. Additionally, NRIs cannot take huge exposure in a stock as there are
limits on NRI stake in an Indian company.
To invest in equities Investors will
need to open an NRE or NRO account, a trading account with a SEBI registered
broker and a demat account. Generally, it may be easier for the investors to
invest in equities via the mutual fund route.
Debt:
Investors can invest in government
securities (G-secs), corporate bonds and certificate of deposits (CD). Investors
can earn attractive interest through their debt investments.
While, investment in G-secs and
corporate bonds can be made from NRO/NRE/FCNR accounts, investment in CDs needs
to be made from NRE/FCNR accounts.
Real estate
Many of Investors may invest in a
property owing to the emotional security such a purchase provides. Generally,
NRIs invest in properties to earn rental income. Additionally, capital
appreciation can be another source of earning.
Although there is no restriction on the
number of real estate purchases, transfer of funds back to foreign country
after selling off the property is not that easy. Advisors should ensure that
their Investors are aware of the restriction on remittances so that they do not
purchase a property with capital gains as the main objective.
NPS account
For Investors who wish to settle in
India post retirement, NPS (national pension scheme) is a good avenue to build
their retirement kitty. An NPS investor can select the proportion of equity and
debt investments in the portfolio and the schemes in which he/she wants to
invest. NRIs can invest in both Tier 1 (which come with some withdrawal
restrictions) and Tier 2 (which do not have any restrictions on withdrawals)
accounts. Investment in NPS is liable for tax deduction.
