NRI Investment in India: 8 Investment Options for NRIs in India 2022

With some restrictions, investment opportunities for non-resident Indians (NRIs) are more or less similar to that for resident Indians, provided they follow guidelines set by the RBI, FEMA and SEBI, and laws enacted by the country of their residence. Knowing about NRI investment options in India and rules that may apply will help you make the right investment choice.

NRI Investment in India: 8 Best Investment Options for NRIs in 2022

Who is NRI investor

To understand NRI investment in India, it is important to determine that an individual investor is NRI. An NRI (Non-Resident Indian) is someone who is a citizen of India but not a resident of India i.e. is now living outside India. Residential status of an individual, whether a resident or non-resident, is determined under the Section 6 of the Income Tax Act. 

As per the Section 6 of ITA, a citizen of India is considered to be an NRI if he/she is not a resident in India, and an individual is deemed to be an Indian in any previous year if he/she meets any of the following criteria:

  1. If an individual resided in India for a period of 182 days or more during the previous year; or
  2. If he/she lived in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year. 
  3. Someone who has been living in India since birth.

An Indian citizen who does not meet the above mentioned criteria is considered a non-resident Indian or NRI. These NRI investors can explore one or many of the above described investment opportunities. 

Read NRI Status for Financial Year 2020-21 to know the amendments in NRIs status due to Covid-19 outbreak. 

NRI Investment in India

While there are various options for NRIs to invest in India, it is not easy to sort out the best options for them.

In such situations, it is important to find an ideal NRI investment option that provides complete financial security and big returns. Some of the best investment options include secondary market equity shares, mutual funds, NRI fixed deposits, bonds, commercial real estate, pre-IPO, micro VC funds, etc.

Schedule a call with an NRI investment expert to get complete help regarding investment in India.

NRI Investment in India: 8 Best Investment Options for NRIs

8 Best NRI Investment Options in India

Before investing in India, you need to find the perfect investment option that will offer the maximum possible returns. You need to consider some important points including investment plan, NRI account for investment, investment appetite, and applicable taxes.

Here are 8 best investment options in India for NRIs with varied investment goals.

  1. NRI Fixed Deposits
  2. NRI Investment in NPS (National Pension Scheme)
  3. NRI Investment in Equity
  4. NRI Investment in Mutual Funds
  5. NRI Investment in Real Estate
  6. NRI investment in Public Provident Fund
  7. Bonds and Non-Convertible Debentures (NCDs)
  8. Pre-IPO investment

1. NRI Fixed Deposits

NRI Fixed Deposits
NRI Investment in India: Fixed Deposits

Fixed Deposits are the most common investment option among NRIs. FDs are one of the safest ways to invest and earn fixed income over a predefined period of time. There are three types NRI Fixed Deposit Accounts

  • Non-Resident External (NRE) Account
  • Non-Resident Ordinary (NRO) Account
  • Foreign Currency Non-Resident (Bank) [FCNR(B)] Account 

Let’s understand these accounts NRI fixed deposit accounts:

  • Non Resident External (NRE) Fixed Deposit: NRE FD accounts are opened by NRIs to deposit their foreign earnings in Indian rupees. NRE FD account interest rate ranges from 2.75% to 7% p.a. The interest earned in an NRE account is tax-free in India, but may be taxed in your country of residence. Both the principal amount as well as the interest can be fully repatriated.

NRE FD rates offered by top Indian banks are as under:

Fixed Deposit Rates in India for NRI: NRE FD

BanksNRE FD Interest Rates (Tax-Free)
Federal5.15% to 5.75%
SBI5.10% to 5.50%*
Citibank2.75% to 3.67%
Bank of Baroda5.00% to 5.35%
Canara Bank5.10% to 5.61%
Indian Bank5.00% to 5.15%
ICICI5.00% to 5.60%*
HDFC5.10% to 6.35%
Indian Overseas Bank5.15`% to 5.45%
Punjab National Bank5.10% to 5.75%
IDBI Bank5.15% to 5.50%*
Kotak5.25% to 5.75%*
DCB5.55% to 8.59%*
Axis Bank5.10% to 5.75%*
DBS Bank3.15% to 4.50%*
Union Bank of India5.00% to 5.50%*
United Bank of India5.20% to 5.30%
YES Bank5.25% to 5.75%
SBM5.85% to 7.00%*
IndusInd6.55% to 7.00%*
RBL6.25% to 7.00%
IDFC5.75% to 6.25%
Central Bank of India5.00% to 5.50%
Deutsche Bank5.25% to 7.00%
NRI Investment in India: NRE FD Rates 2022
  • Non Resident Ordinary (NRO) Fixed Deposit: NRIs can open an NRO Fixed Deposit account to maintain and save their income generated in India, such as dividends, rental income, pension, etc. You can earn up to a 7.30%* interest rate on these accounts. Interest earned on the funds is taxable in India at 30% along with surcharge and cess.
  • Foreign Currency Non-Resident (Bank) [FCNR(B)] Fixed Deposit: An FCNR (B) fixed deposit account allows NRIs to deposit funds in a foreign currency in India, such as USD, GBP, EUR, JPY, AUD, CAD, SGD, HKD, and others . You can deposit money for different terms, like 12 months, 24 months, 36 months, 48 months or 60 months. An FCNR account helps to avoid currency fluctuation. FCNR FD interest rates vary based on the currency. The interest income is not taxable in India and both the principal amount as well as the interest are completely repatriable.
NRI Investment in India: FCNR Account

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2. NRI Investment in NPS (National Pension Scheme)

National Pension Scheme or NPS could be one more reliable source of investment for NRIs in India. NPS scheme is fully backed by government and allows NRIs to invest in equity funds, debts or a combination of both.

Individuals between the age of 18 years and 60 years can invest in NPS with minimal documents like PAN card and Aadhaar card. You need a Non-Resident External (NRE) account or Non-Resident Ordinary (NRO) account when investing in NPS.

You can go for one of the following options under the National Pension Scheme for NRIs.

Active choice

In active choice, the asset is allocated between:

  • Equity
  • Corporate bond
  • Government Securities

Up to 75% can be contributed in equity.

Auto choice

As the name suggests, assets are allocated automatically and can’t be decided by the investor. Asset allocation depends on the age of the NRI applicant.

Tax Benefits of NPS investment: An NPS is not exempt from tax. The capital gains are not taxed but all payouts are taxed as per your tax slab based on your Indian income is classified.

The Subscriber is free to manage the frequency and amounts of contributions. There are two types of Accounts under NPS: 

  • Tier 1: Money in this account is locked until retirement. If you retire before the age of 60 you may take 20% of the investment as cash (tax-free). The remaining 80% is invested into an annuity (an investment that pays you a fixed yearly amount). If retiring after 60, then a minimum of 40% must be annuitized and the balance can be withdrawn lump sum (tax-free).
  • Tier 2: Only tier 1 account holders are allowed to open a tier 2 account. Tier 2 accounts allow you to deposit and withdraw money as you wish. There are many types of investments that you can choose from (Equities, Corporate Bonds, Government Bonds etc.) also referred as (E, C & G) to help you to create an effective investment strategy.

Note: You can withdraw the corpus amount if it is lesser than INR 2 lakhs.

3. NRI Investment in Equity

NRI investors who are ready to take some risk in the stock market can consider investing in equity. Non-Resident Indians can directly invest in the stock market in India under the Portfolio Investment Scheme (PIS) of the RBI.

NRIs need to have following accounts for equity investments:

Dividend income and the capital gains earned by NRIs from shares and equity oriented schemes of mutual funds are taxed in India. Find the capital gains tax on shares purchased by NRIs.

4. NRI Investment in Mutual Funds

Mutual funds can be an ideal option for NRIs with limited knowledge and understanding of Indian market. Mutual funds can offer much higher returns than bank FDs. There are various NRI mutual fund schemes.

Just like resident Indians, NRIs can also invest in mutual funds in India, but there are only a few AMCs that offer mutual funds for NRIs based in the USA and Canada. NRIs living in USA and Canada are faced with certain tedious compliance requirements under FACTA to invest in mutual funds in India.

The government of India allows NRIs to invest in the following capital markets in India: 

  • Direct stocks
  • Mutual funds
  • Exchange-traded funds

As compared to fixed deposits or national pension schemes, mutual funds are a little riskier. NRIs can select funds according to their risk profile and future goals. 

How can NRI invest in Mutual Funds in India?

To invest in mutual funds in India, you need to fulfill FEMA guidelines for being an NRI. Some key points for NRI investment in mutual funds are as follows:

  • Investment can be made through Non-Resident External account
  • You can use Non-Resident Ordinary account to invest in MFs 
  • Investment is possible in Indian National Currency (INR) only and not in a foreign currency
Indian Mutual Fund Houses for US Residents

5. NRI Investment in Real Estate

A long-term investment with steady growth, real estate is a decent source of investment. NRIs can easily buy property in India and rent it out for extra income. It offers good long-term returns along with steady growth over a period.  

What properties can NRIs buy in India?

NRIs are allowed to purchase both residential and commercial real estate properties in India. Because of high rental yields and outperforming returns, non-resident Indians are eyeing commercial real estate in India. NRIs can invest in commercial properties through fractional ownership with a minimum of Rs. 25 lakh investment. However, they can not buy any Agricultural Land, Farm House or Plantation property. They can only be inherited or received as gifts.

NRIs can use the following bank accounts to buy or sell a property in India:

  • Non-Resident External Account
  • Non-Resident Ordinary Account
  • Foreign Currency Non-Resident Account
Investment in India: Real Estate Overview

Ask SBNRI Real Estate Expert Now

6. NRI investment in Public Provident Fund

An NRI can continue with his/ her PPF account which they opened as a resident Indian. However, if an NRI doesn’t have a PPF account, she/ he can’t apply for the same with non-resident status. NRIs can’t extend their PPF account after the maturity period of 15 years. 

7. Bonds and Non-Convertible Debentures (NCDs)

NRIs can invest in bonds and non-convertible debentures (NCDs) in India. NRIs are now eligible to invest in government securities in the form of bonds for NRIs in India without any ceiling limit in certain securities. 

Three main bond categories are as follows:

  1. PSU Bonds: Under PSU bonds, investors lend money to a company and they promise to repay the loan with interest on a specific date (maturity date). The interest on PSU bonds are determined depending on the creditworthiness of the company that issues it.  

The NRI investor doesn’t get any tax exemption, but the interest earned is tax-free U/S 10 (15) (IV) (h). If you sell them after owning them for more than 3 years, the investment is taxed @ 20%. NRIs can also claim tax deductions if they invest in capital gain bonds by REC and NHAI under section 54 EC.  

  1. Non-Convertible Debentures (NCD): NRIs can invest in non-convertible debentures (NCDs) for a secure and long-term investment. They are secured by the company’s assets. Interest rate is a bit lower than unsecured debt as the risk involved is less.
  1. Perpetual Bonds: There is no fixed maturity date for these bonds. However, the issuing company promises to pay the investor a set amount of returns per year. Perpetual bonds are traded on the open market. The present market conditions and holders’ willingness to sell will determine if they make a profit by selling the investment.  

8. Pre-IPO investment

Pre-IPO can be an attractive investment option for NRIs. In pre-IPO markets, people buy and sell shares of a company that is yet to be listed on a public exchange. Private companies sell their shares through an intermediary i.e. an investment firm that can help you successfully close the transaction. 

When an NRI buys unlisted shares, the units will be deposited in your NRI Demat account. Pre-IPO shares provide massive opportunity for growth but the investment in such assets is riskier because they are less regulated. Hence, it is crucial to find a trusted intermediary.

Because of the rapid industrial development over the past two decades, India is attracting massive foreign direct investment (FDI). A spurt in NRI investment in India has been seen in recent years.

To ask any question related to NRI investment in India, you can schedule a call by clicking the button below or download SBNRI App from the Google Play Store or App Store. You can also use the SBNRI app for investment in stock market/ mutual funds, NPS, Fixed Deposit, Pre-IPO, Asset Finance, Commercial Real Estate, Indian Startups Funds, NRI account opening, etc. To ask any questions, click on the button below. Also, visit our blog and YouTube channel for more details.

FAQs

Can NRI invest in Indian stock market?

A- Yes. NRIs can invest in Indian Stock Market by buying stocks listed on the National Stock Exchange of India Ltd. (NSE). To be eligible to invest into stocks, NRIs need to have a PIS Account under the Portfolio Investment Scheme* (PIS) that will allow them to trade stocks. *(Portfolio Investment Scheme (PIS): Through this scheme of the Reserve Bank of India, NRIs can purchase and sell shares and debentures of Indian companies on a recognized stock exchange) 

Can NRI invest in India with just a PAN Card?

Yes, NRIs can use a PAN card and NRE/NRO account to invest in a mutual fund. To invest in shares, NRIs need an NRE account under PIS bank or NRO account, bank account and Demat account.  

Can NRI have 2 demat accounts?

A- Yes. An NRI can have multiple demat accounts. The usage of these multiple demat accounts can be understood under the concepts of:

1. Repatriation: NRIs must have separate demat accounts for repatriable (NRE) and non-repatriable (NRO) shares which means if you invest through your NRE account, the money you receive after selling the shares/stocks is completely and freely repatriable whereas investments through NRO accounts will have to be initially settled by paying applicable taxes and then they can be repatriated. NRE accounts are used to buy shares (equity) on a repatriable basis and NRO accounts are used to invest in shares (equity and derivatives) on a non-repatriable basis. The NRE/NRO Accounts can be used to invest in the primary market without PIS (Portfolio Investment Scheme) (eg: IPOs, Mutual Funds)

2. Market Variation: In order to invest in the secondary market you need a separate bank account to hold your investment funds that will be linked to the Portfolio Investment Scheme (PIS). This account can not be your regular NRE/NRO account and this account will be linked to a demat account to hold your shares as directed by RBI.

Is PIS mandatory for NRI?

A- No, PIS permission is not required for an NRO (Non-Resident Ordinary) account. Previously, the NRI had to open NRE and NRO accounts under PIS regulated by RBI.

Can NRI invest in property in India?

A- Yes. An NRI can invest in property in India but there are exceptions. Though RBI has given general permission to the NRIs to purchase immovable properties in India, the permission does not grant power to acquire any and every property in India. The NRIs are allowed to purchase only residential or commercial property. So NRIs cannot purchase any agricultural land or plantation property.

Can NRIs invest in PPF?

Yes, NRIs can have a Public Provident Fund (PPF) and invest in it. However, an NRI can open a PPF account when he/she was a resident Indian. 

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