NRIs have always toyed with the idea of investing in their homeland for want of better returns, and in a sense, they find peace in the fact that they are contributing in some manner to the economic betterment of their own country. Here are the top 4 reasons why NRIs should consider investing in India over the long haul.
1. Emerging economy:
India is among the fastest-growing economies, and many investors worldwide are eyeing India as an investment destination. Then it only makes sense for someone familiar with this exotic land to invest here. Emerging economies also can provide superior returns as compared to that developed economies. It is also rewarding to stay invested in emerging economies over the long haul, as they accrue attractive returns over the years.
Further, the risk is considerably reduced as one stays invested over the longer term. The intermediate dips in the economy will be ironed out over the long haul as one continues to stay invested and commits money during such dips.
2. Retirement planning:
Retirement planning is an essential part of your holistic financial plan. The earlier you start, the better. This is typically a long-term goal. Many NRIs also dream of spending their golden years in the place of their childhood.
Given that the standard of living is relatively low in India, the corpus required to sustain your golden years would be lower. It only makes sense to initiate investment in a variety of investments back home to prep up your corpus, which you can conveniently use during your retirement.
3. Familial connections:
Many individuals go abroad to earn a higher income, often leaving behind their parents and spouses and children. Many have attained the status of NRIs but continue to have familial connections back in their homeland. They often send money to their connections in India.
There are instances when they have invested back home to create a corpus that their family can use during emergencies. It is also a fact that investing in India provides you with better income levels. This extra income can facilitate the needs of your family.
Building assets for generations:
Buying a property in developed nations continues to be a hassle. Real estate investment in India is far more rewarding and less time-consuming than investing in property abroad. NRIs also prefer creating generational assets in India, which can be passed on to their kith and kin for years to come.
For NRIs who wish to invest in India, multiple attractive options are also available. Let us talk about those in detail.
Multiple investment options
There is very little awareness about the many investment options available in India for NRIs. Here are the avenues where NRIs can invest and get attractive returns.
1. Fixed deposits for NRIs:
A very common avenue for NRI investment in India since there is a positive return in fixed income guaranteed investment, unlike a large number of countries across the world. It works like any other fixed deposit, you need to deposit money in your account for a pre-determined period, and it will earn a fixed interest rate for the period. You are allowed to withdraw the amount after the period is over. The principal and the interest are paid out upon elapse of the lock-in period. There are 3 types of fixed deposit accounts for NRIs:
1. NRE:
A non-resident external account (NRE) is where the money is kept in rupees. It can be easily converted to dollars as intended at any point in time. Interest rates on the accounts are a function of the deposit amount, tenure and the bank.
2. NRO:
NRIs use an ordinary non-resident account (NRO) to control any Indian income arising in their homeland. The income could be in the form of rental income, dividends or interest, payouts from insurance plans, pension plans etc., The accounts have a maximum limit of $1 million, which is allowed to be transferred from the account to the foreign country account per year. Interest earned on NRO fixed deposit is taxed at 30%.
3. FCNR:
Foreign Currency Non-Resident (FCNR) stores foreign currency. These accounts help manage the exchange rate fluctuations. The quantum of foreign currency and the type of currency deposited would determine the interest rate. USD could potentially earn an interest rate of 2%-3% p.a. The Indian Government does not tax any of the money in this account, including the earnings. The interest earnings are to be shown as income along with your other income.
2. Mutual funds:
The other most popular investment avenue for NRIs is mutual funds. An NRI should hold either NRE, NRO or FCNR account in India to invest in mutual funds in India. This account is necessary for investing and redeeming the investment as per the investor's intent. They must only comply with the FATCA (Foreign Account Tax Compliance Act) norms.
Broadly, there are three types of mutual fund categories, debt mutual funds with at least 65% exposure in debt instruments and equity mutual funds with at least 65% exposure in equity-oriented funds and hybrid, which is a combination of primarily Debt and Equity.
3. Equity stocks:
Upon availing of the PINS (portfolio investment scheme) from the RBI, you can trade in equity shares. As an NRI investor, you need to hold NRE/NRO account dedicated for PIS purposes, a Demat account to hold the share in e-form and a trading account approved by a broker registered with SEBI.
4. PMS and AIF
AIF is a confidentially pooled investment vehicle that any HNI or NRI can consider investing in. Alternative investments include structured products, commodities, hedge funds, real estate, private equity etc. Given the asset classes, it is apparent that you require a demat account to invest in this asset class.
PMS are highly curated portfolios that invest across debt and equity, an exclusive demat account is necessary each time a new PMS account is opened.
You can consider investing in these avenues to add a new flavour to your portfolio. Albeit the fact that they increase the risk marginally, they provide the potential for substantial upside.
5. Real estate:
Investing in property remains one of the favourite investment avenues for NRIs. It is seemingly easier to invest in property in India than in any of the developed countries. It is also an excellent means to create a long-term asset with a stable growth rate.
To buy and sell the property, as an NRI, you require either an NRO, NRE or FCNR account. There are some restrictions on how much money can return to dollars after the entire transaction has been completed.
Having understood elaborately the reasons why an NRI should consider investing in India, it is apparent that India is a lucrative investment destination. However, you may require expert assistance in investing in the right avenues. Reach out to financial counsellors at TATA Capital Wealth, who can help you with your investments.
06 September 2022
6 mins read
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