By some estimates, there are more immigrants of Indian origin today than from any other country in the world. This could very well be true. The number of Non-Resident Indian (NRIs) has been increasing over the years and reports show that NRIs repatriate approximately $70 billion every year through remittances only.
Undoubtedly, the lion’s share of this money is invested in India in various assets. Whether you are an NRI or a Resident Indian, the principles of financial planning would remain the same. However, what would differ is the effort required to follow various compliance measures put forth by the Government of India.
The first step is to understand whether you satisfy conditions of being an NRI?
As per the Income Tax act 1961, a person is a Resident of India if:
- He or she has stayed 182 days or more in India in the current financial year or
- He or she stayed in India for 60 days or more in the previous financial year and 365 days or more in the preceding 4 years (The 4 years shall be counted from the year before the financial year which is into consideration).
If you satisfy any of the above conditions, then you become an Ordinary Resident. In case you don’t satisfy them, then you shall be considered as a Non Resident Indian or NRI.
NRIs can look at the following investment options when it comes to allocating their money in their home country.
This is the most conventional place for NRIs to invest their money. They can invest in fixed deposits through NRE (Non-resident external accounts), NRO (Non-resident ordinary account) and FCNR (Foreign currency Non-resident). These accounts generally offer a higher interest rate. Additionally, the interest generated from NRE deposits is not taxable.
NRIs can invest in mutual funds through any of the above stated bank accounts – NRE, NRO and FCNR. NRIs have now started to consider mutual funds as a good investment option that can help them build their wealth over the long-term. One important aspect about mutual fund investment for NRIs is that you can only invest via Indian currency and not any other foreign currency. However, NRIs looking to invest in mutual funds need to understand the slightly differentiated tax treatment.
NRIs can invest in Government securities and National Pension Scheme through their NRE/FCNR account. These options are very safe but generate lower returns compared to other investment options.
NRIs have the option of making direct equity investments in India. However, these must be compulsorily done through the Portfolio Investment Scheme (PINS). The investor needs to get the necessary permission from the Reserve Bank of India (RBI) to trade through PINS account. As per the RBI, only one PINS account can be held by an NRI at a time as all the transactions are reported through this account as per the regulations of FEMA (Foreign Exchange Management Act). Additionally, there are also restrictions in terms of the stocks eligible for investment and the total investment in any particular company.
Many NRIs believe that investing in real estate is a great choice as it provides a sense of security at home, as well as, a potential for capital appreciation. As an NRI, one can purchase both commercial and residential property in India. However, the selling of property is subject to certain restrictions imposed by FEMA (Foreign exchange management Act).
There are myriad investment options in India for NRI investors and the regulatory environment is fairly conducive to allow for such investments.