Financial products that NRIs can invest in India

Fixed deposits, publicly listed stocks, futures and options, mutual funds, government securities, and real estate are among the popular and lucrative investment choices for NRIs who wish to build financial assets back home.

Financial products that NRIs can invest in India

Persons of Indian Origin (PIOs), Overseas Citizens of India (OCIs) and Non-Resident Indians (NRIs) remit a lot of money back home – especially those earning and living in developed economies. India is the world’s top recipient of inward remittances, with over US$80 billion incoming in 2018. While some of it goes towards assisting family members, a lot goes towards building financial assets and planning for retirement. Here are some popular investment choices for NRIs.

Bank deposits

Fixed deposits are among the most popular investment options for NRIs, as this enables them to earn a higher rate of interest here as compared to other developed economies. The interest earned on the deposit, however, will depend on the nature of the bank account. While NRO accounts offer the same rate of interest as an ordinary resident account, earnings on NRE deposits are slightly lower. 

Proceeds of the NRE account can be repatriated, but not those from an NRO account. Non-residents can also directly invest in a deposit using various major foreign currencies in a Foreign Currency Non-Repatriable (FCNR) account.

Equity

Through the Portfolio Investment Scheme (PIS) promoted by the RBI, NRIs can trade in listed equity shares on public bourses. Before they can do so, they have to get approval under the PIS scheme. NRIs will also require a demat account and a trading account from a SEBI-registered broker, and have an active NRE/NRO account with a bank.

Non-residents, however, cannot make intraday trades and can only buy stocks on a delivery basis. Additionally, they cannot invest more than 10% of the paid-up capital of a single company’s stock. Applicability of tax on earning through equity is the same as for resident Indians.

Derivatives

For investments in options, futures, and other derivatives, NRIs have to register with a clearing member who can forward the trades to the Clearing Corporation (CC). The CC then allots a unique Custodial Participant (CP) code to every NRI investor based on the application forwarded by the clearing member. With this, NRIs can trade in futures and options through intraday, leverage, index, or short positions.

Mutual funds

NRIs from all countries except USA and Canada can freely invest in all mutual funds and Exchange Traded Funds (ETFs). Investors from the North American countries have to abide by FATCA rules that restrict their investment to certain mutual fund houses only. Again, taxation on mutual fund investments for NRIs is similar to that for resident Indians, except that mutual fund houses will deduct tax at source (TDS) on NRI investments as per the Income Tax Act.

Government securities

To fund public welfare or infrastructure projects, the Indian government issues bonds, which are open to investment by all, including NRIs through their NRE/NRO account. However, proceeds from an investment made via an NRE account can only be repatriated after three years, while investments in government securities made through an NRO account are not eligible for repatriation. Hence, NRIs should choose the funding bank accounts after considering their repatriation needs.

Other government schemes

There is a multitude of government schemes that non-residents can invest in, but these may come with certain conditions. For example, NRIs can continue with an existing Public Provident Fund (PPF) account and National Savings Certificate (NSC) if they have one from the time they were ordinarily resident, but they cannot open a new PPF or NSC account once their status changes to a non-resident. On the other hand, there are no restrictions on making fresh investments in the National Pension Scheme (NPS) as an NRI.

Real estate

Non-residents can invest in residential and commercial assets but are not allowed to invest in agricultural land, farms, and plantations. However, if an NRI wants to sell a property within two years of purchase, they will have to incur a TDS of 30%, of which 20% has to be deducted and deposited by the buyer. Income tax applicable for long-term gains on sale after two years attracts a TDS of 20%.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.




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