The whole world has been the witness of India’s growth over the last two decades. India is leading to be the fastest developing country in the world, that is also attracting foreign investments and Non-Resident Indian to be a part of its growth journey by investing in India.
The Indian government is creating more business each day which is an opportunity for the NRIs to invest in the country. But NRIs are not aware of the best investment options which are available for them in India. Just like every other investor, it is also necessary for NRI investors to explore all the options and choose the one which fulfils your financial goals and risk profile.
Let’s explore these options in detail.
Types of Bank Accounts an NRI can open in India:
- NRE: Non-Resident (External) Rupee Account: It is a type of bank account that is opened by an NRI to keep his foreign earnings in India.
- NRO: Non-Resident (Ordinary) Rupee Account: It is a bank account opened by an NRI to manage his/her earnings which are earned in India like Dividends, Pensions, interest, rent, etc.
- FCNR: Foreign Currency (Non-Resident) Account: It is a bank account that allows NRIs to save their overseas money in the form of foreign currency in a term deposit.
NRI Investment Options in India
There is a wide range of options available for NRIs, but here are some prime options available that have the potential to fulfil everyone’s goals:
FDs (Fixed Deposits) are widely considered as the first investment choice of every Indian resident. FDs are also the first choice of investment among NRIs. This is because fixed deposits are considered to be one of the safest options to invest in.
NRIs can start investing in fixed deposits with their NRE (Non-Resident External), NRO (Non-Resident Ordinary), or FCNR (Foreign Currency Non-Resident) accounts.
The rate of interest relies on the bank, the amount you deposit, and the tenure of the deposit. Banks and NBFCs (Non-Banking Finance Companies) generally offer higher rates of interest on higher amounts deposited for a long-term period. Senior citizens get the benefit of getting a slightly higher rate of interest.
The current FD rate of interest for NRE varies between 3% to 7%. FDs are a good option for the risk-averse investor who can settle with average returns. This might be the most common and risk-free investment option for an NRI.
Fixed Deposits are generally offered by both non-banking and banking agencies; where NRI investors can deposit money for a fixed period for a higher rate of interest than any other savings account.
The only drawback here is that one can only withdraw the money on its Maturity. In certain situations, depositors can withdraw their deposit but, with a penalty.
Investment in mutual funds comes with moderate risk. Mutual funds might be a good choice for risk-neutral investors who wish to earn higher returns than FDs. Several fund houses offer various types of investment funds, and investors can select the best one as per their risk tolerance and financial goals.
NRIs can invest in mutual funds with their NRE or NRO accounts. However, investors can only invest in Indian Rupees (INR) and not in foreign currencies.
Returns offered by mutual funds depend on the type of fund the individual has (debt, equity, and hybrid) invested in.
Public Provident Fund
PPF is a safe investment option offered by the Indian government. NRIs can also invest in this fund scheme which is currently offering 8% returns per annum on the investment.
PPF is a long-term investment as it comes with a lock-in period of 15 years, and investors can only invest Rs. 1.5 lakh per annum with the benefit of tax deduction under section 80C of the Income Tax Act.
Bonds and Non-Convertible Debentures
Investment in bonds can be a good option for NRIs as bonds come with security and a fixed maturity period. Bonds in India can be offered by public companies or by government agencies with the exchange of interest rates.
Aside from the stock market and mutual funds, non-convertible debentures (NCD) can also be a good investment option for NRI investors. This investment tends to be a long term investment offered by companies.
NRIs can invest in NCD through NRE or NRO bank accounts.
National Pension Scheme
This scheme is offered by the Indian government and can be part of a healthy retirement plan. Anyone in the age of 18 to 60 years can invest in this scheme.
Maturity benefits are taxable on the National Pension Scheme. However, the fund is completely tax-exempt on Maturity. Investing in this scheme is considered safe as it is backed up by the Indian government. This scheme offers a return of 12% to 14% annually.
The Indian real estate sector has been growing lately. The real estate prices in major cities of India such as Mumbai, Bengaluru, Pune, and Delhi have shot upwards in the last decade. This is why, as a means of earning good money, many NRIs are purchasing houses in India to let out for rent.
There are several options available to choose from. Investors need to analyze their financial goals and risk tolerance before deciding on investing.
Investing in India, especially in the real estate sector, is being considered as a good option as the country is expected to see a lot of developmental activities over the next decade.
If the investor is an aggressive investor (Risk Lover) whose risk tolerance is high, then they can consider investing in equity. Under the RBIs Portfolio Investment Scheme (PINS), NRIs can invest directly in the Indian stock market.
However, NRIs must have an NRO/NRE bank account, a Trading account, and a Demat account to invest in the Indian stock market.
India is one of the fastest developing countries in the world, and it can be a great opportunity for NRIs to invest in to earn higher profits and to stay connected with their motherland and contribute towards the Indian economy.