Neena Bajpai asked on 22/03/2020

What are the best investment opportunities for NRIs to invest in India?

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SBNRI Team
answered on 22/03/2020

There are a lot of investment opportunities for NRIs in India. We have assorted the top 5 investment opportunities for NRIs in India for you, check them out below:

 

Investment Opportunities for NRIs in India

 

The top 5 investment opportunities for NRIs in India are:

1. Fixed Deposit Bank Accounts: The most common and rewarding investment opportunity for NRIs is opening a Fixed Deposit Bank Account (NRE/NRO/FCNR) with interest rates as high as 7.95%*

    • Non-Resident External (NRE): The NRE account can be opened for the purpose of maintaining the income earned outside India with tax free interest (upto 7.95%) on Fixed Deposits. Both the principal amount and interest earned are completely repatriable from India. Although, domestic credits aren’t allowed
    • Non-Resident Ordinary (NRO): The NRO account can be opened for the purpose of maintaining the income earned from India such as income from rent, pension, etc. The repatriation of the money in the account can be done up to a maximum of 1 million USD per financial year. Note: 30% tax + surcharge + education cess will be deducted at the source of interest earned in India (only current income such as rent, pension etc. can be repatriated)
    • A Foreign Currency (Non-Resident) Account which is a term deposit account in USD, GBP, EUR, JPY, AUD, CAD, SGD, HKD, and others. The ‘term’ in a term deposit account is a fixed tenure of up to 12 months, 24 months, 36 months, 48 months or 60 months that can be opted by the NRIs at the time of account opening. The interest income is not taxable in India and both the principal amount as well as the interest are completely repatriable

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2. Mutual Funds: An NRI can invest in Mutual Funds In India by registering themselves with the Registered Transfer Agents (RTA) and completing Mutual Fund KYC with them. An NRI needs an NRE or NRO account in India to be able to invest in an Indian mutual fund.

 

The top RTAs in India for Mutual Fund Investments are CAMS (Computer Age Management Services) and Karvy. The Mutual Fund Investments can be done on both repatriable and non-repatriable basis.

 

 

Different types of Mutual Funds are taxed differently: 

 

*(Equity Funds: An equity fund is a mutual fund that invests principally in stocks)

 

*(Debt Funds: A debt fund is a mutual fund that invests in fixed-interest generating securities such as corporate bonds, government securities)

 

Nature of Profits / Income

Equity Funds* Debt Funds*
Minimum Holding period for Long term capital gains 1 year

3 years

Short term capital gains taxation

15% + 4% cess* = 15.60% As per the tax rate of the investor (30% + 4% cess = 31.20% for investors in the highest tax slab)
Long term capital gains taxation 10% + 4% cess = 10.40% (if the long term gain exceeds Rs 1 Lakh)

(long term gains up to Rs 1 Lakh is tax-free) 

20% with indexation*

 

*(Cess: A cess is a tax on tax that you pay to the government for purposes set by the government. The cess is charged till the objective set by the government is fulfilled. Eg: Krishi Kalyan Cess, Swachh Bharat Cess etc.)

 

*(Indexation: Indexation refers to the technique of adjusting income payments using a price index to maintain the purchasing power of the public after inflation) 

 

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3. Direct Equity: NRIs can buy shares by investing their money into stocks on the National Stock Exchange of India Ltd. (NSE). To be eligible to invest into stocks, NRIs need to be a part of the 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) that will allow them to trade stocks.

 

In order to buy shares, an NRI requires the following things:

    • NRE/NRO Savings Account for PIS Purpose
    • Dematerialized Account that holds shares in an electronic form
    • A Trading Account with a registered broker

 

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4. Real Estate: NRIs can invest in Real Estate in India by understanding the simple facts of where to invest and how to invest.

 

Where to Invest: NRIs can buy both residential and commercial properties in India. However, they can not buy any Agricultural Land, Farm House or Plantation property. They can only be inherited or received as gifts.

How to Invest: NRIs can buy the “allowed” real estate properties through the following mediums:

    • Self-Transactions by NRIs using:
      • Funds in their NRE/NRO/FCNR (B) accounts in India
      • Funds remitted to India from overseas(in own account; can’t pay to the seller directly)
    • Loan Facility (in INR) in India for NRIs; up to 80% of the property value based on individual eligibility of the NRI than can be repaid through:
      • Inward Remittance (money transferred into your own account from abroad)
      • Funds in their NRE/NRO/FCNR (Bank) accounts in India
      • Rent from the purchased property
      • Close Relatives crediting the borrower’s loan account (under section 6 of the Companies Act, 1956)

Note: No payments can be made by traveller’s cheque (pre-paid, pre-printed fixed amount cheques for payments across countries) or in foreign currency notes. All payments must be made in India only.

 

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5. National Pension Scheme (NPS): NRIs can open the NPS account if they have a Pan Card and a bank account. The NPS Account provides tax breaks up to 1.5 Lakhs.

 

Eligibility: Age must be between 18 to 60 years

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 tier 2 accounts. 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: The gains on NPS aren’t taxable but the money you receive as payouts are taxable according to your tax slab (the tax bracket under which your Indian income falls) 

 

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