There are several NRI investment options in India, such as mutual funds, equity stocks, IPOs, ETF, bonds, etc. However, Non-Resident Indians have to deal with many complicated rules and regulations when investing in India. For example, they need to convert their Demat account into NRE or NRO account, only a few AMCs offer mutual funds for NRIs from the USA and Canada, and tax rules for NRIs and residents differ in certain ways. Here we will discuss common problems faced by NRIs when investing in India.
Also Read: Mutual Funds for NRIs from USA/Canada to Invest in India
Once an Indian attains the NRI status, he/she must open an NRE/ NRO account or convert the existing account to a Rupee-designated NRI account. Similarly, a Demat account needs to be converted into an NRO account, while stock trading activities need to be routed through a PIS (Portfolio Investment Scheme) account. NRIs need to stay updated about the changes in the rules related to NRI investment in India.
Schedule a call with NRI investment experts to invest in India or know more about the process.
Note: A Demat account is not mandatory for NRIs to invest in mutual funds in India. NRIs can download SBNRI App to choose from 3000+ mutual fund schemes in India or to ask any questions related to mutual fund investment.
Also Read: NRI Repatriable Demat Account: Meaning and Purpose
Common problems faced by NRIs when investing in India
Restrictions on Investment
As discussed above, some NRIs have to deal with complicated processes and stringent regulations to invest in the Indian market. For instance, as a US-based NRI, you must be aware of the mutual fund houses in India you are allowed to invest through. This is because after the implementation of the Foreign Account Tax Compliance Act (FACTA), mutual funds houses have to deal with lots of paperwork and compliance to receive investments from NRIs in the USA and Canada.
As a result, only a handful of AMC accept investments from US-based NRIs. However, NRIs of other nations only need to update their residential status by submitting necessary documents.
Tax Avoidance/ Double Taxation
Tax avoidance or double taxation is another whammy faced by NRIs. Income earned by NRIs in India in the form of dividends from equity shares or mutual funds, interest from NRO accounts/ FDs, rent, capital gains, etc. which exceeds the specified amount is subject to income tax filing. Moreover, investments by NRIs could result in double taxation in some countries. They may have to pay double tax both in India as well as in the country of their residence.
To reduce this double taxation burden on NRIs, India has signed a tax treaty known as Double Taxation Avoidance Agreement (DTAA) with more than 90 countries across the world. This treaty works to tackle the problem of tax avoidance as well as solve the issue of double taxation of NRIs. As per the treaty, NRIs need to pay tax in either of the countries. This means, if you have already paid taxes on capital gains in India, you don’t need to pay tax for the same in the country of your residence. This will provide great relief to NRIs living in these countries.
Tying your portfolio to a single asset class in one country is a gamble and may not get you desired returns. NRIs usually invest in traditional fixed returns assets in India like bank FDs, gold and real estate and hence can’t diversify their investments across asset classes. Complicated web of regulations, an array of transactional compliances, lack of knowledge of Indian market, and taxation are some of the reasons because of which NRIs show a lack of enthusiasm to invest in other asset classes.
Although, there are multiple avenues for NRIs to choose from that offer higher returns, such as NCDs, direct equity, IPOs, ETFs, mutual funds and more.
Also Read: NRI Capital Gains Tax on Shares 2022
Young tech-savvy NRIs often tend to invest a massive amount in digital assets like NFTs (Non-Fungible Tokens) and cryptocurrencies. But due to their volatility and ambiguity over such digital assets’ legality in India, NRIs make limited investments, ensuring that uncertainty or volatility doesn’t put their financial portfolio at risk.
Personalized Solutions for NRIs
In the last few years, Indian market has changed a lot; it is not the same market as during 2000. People who stayed away from the stock market for decades mainly on account of lack of awareness and risk tolerance are now heavily investing across asset classes including direct equity, IPOs, ETFs, mutual funds and more. India’s equity market has crossed the $3 trillion mark in market capitalization.
There are a wide array of NRI investment options in India across assets. Many next-gen banks, stockbrokers and fintech players are offering customized online NRI investment plans. Now non-residents and PIO/OCI cardholders can open an NRI bank account, Demat account and trading account online and start trading and investing in the Indian market.
Also Read: NRI Trading Account Charges Comparison 2021 – 22
To ensure full compliance with Indian laws and for NRI taxation related queries, NRIs can get in touch with experts in India online from their country of residence. With the advent of financial technologies and the Government of India’s efforts to boost NRI investment in India, common problems faced by NRIs when investing in India have been reduced to a larger extent. Procedures of investment have swiftly moved to online modes offering investors much transactional ease, even for investors living overseas.
Also Read: Things NRIs should keep in mind when investing in Mutual Funds
Living away from India, NRIs may come across some hurdles, but with proper planning and guidelines they can benefit from India’s future potential. At SBNRI, we understand that there are many obstacles faced by NRIs while investing in India. You can download SBNRI App to connect with our experts to know about the best NRI investment plans that suit your requirements. You will get end-to-end assistance throughout the process.
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