With relaxed investment norms, non-resident Indians have several opportunities to explore when it comes to investing in India. Unfortunately, the internet is loaded with unsound advice on investment options which makes it difficult for such investors to make the right call. When it comes to investing the hard-earned money to enjoy great returns, every decision needs to be thought through and that’s exactly what this article aims at. Read on to know more about the investment options in store for NRIs:
Who is an NRI?
As per the Income Tax Act of India, a ‘Non-resident Indian’ is an individual who is a citizen of India or a person of Indian origin and does not stay in India for 181 days. A person who has stayed less than 365 days during 4 years preceding that year and less than 60 days in that year in India is also classified as an NRI.
What are the various investment avenues available for NRIs?
Gold is often one of the most preferred investment options for NRIs. Gone are the days of owning gold physically and worrying about its safe keep. Now NRIs can invest through gold exchange-traded funds (ETFs) and gold bonds. Gold is also a recommended investment option as, during economic uncertainty, the price of gold strengthens and rises. So if NRIs are looking for a long-term investment horizon and want to diversify their portfolio, this is an investment avenue they can consider.
A failsafe investment option for NRIs is a fixed deposit with a bank or NBFC of their choosing. To do so, an NRI needs to have an FCNR (Account for depositing foreign currency earned in India), NRO (Account for depositing income earned in India), or NRE (for income earned from outside) account.
The only shortcoming is that the interest rate offered by FDs is not as attractive as other options. However, if steady returns are the only consideration, especially for senior citizens who are wary of risks due to market fluctuations, FDs are a perfect choice.
Stocks are a great wealth creation tool, especially for NRIs with a long-term investment horizon. Picking the right stocks for the portfolio can generate handsome returns over the long term. It is essential to pick stocks suited to risk profile and investment goals.
National Pension System is another investment option that NRIs can explore. NPS is a pension cum investment scheme regulated by Pension Fund Regulatory and Development Authority (PFRDA).
A subscriber can regularly contribute to the pension account while working, withdraw a part of the corpus on a lumpsum basis, and use the rest to purchase an annuity plan for securing regular income post-retirement. Investors can choose their asset allocation as per their own risk appetite or use the auto choice option through which asset allocation is determined on the basis of the age of the investor and shuffled every year. If you have a PAN card or an Aadhar card, you can open an eNPS account. The investments are made using NRO or NRE bank account. Withdrawals are allowed after the investor turns 60. If the invested corpus is more than INR 5 lakh at the time of maturity, only 60% of the corpus can be withdrawn and the rest is used for purchasing an annuity plan.
Premature withdrawals before 60 are permitted, provided only 20% of the corpus is withdrawn, and the rest is annuitised. Some NRIs may find this mandatory anuitisation a hassle.
Equity mutual funds:
Flexi-cap equity mutual funds are one of the best options NRIs can consider. Mutual funds help in spreading the risk in equities by investing in a basket of stocks. Such investments are easy to manage and often work favorably for NRIs due to rupee value appreciation.
A Non-Resident External (NRE) or a Foreign Currency Non-Resident (FCNR) account in a bank is essential for NRIs to invest in mutual funds. NRIs are permitted to invest in mutual funds on a repatriable basis and the interest plus maturity proceeds can be remitted through normal banking channels or credited to the NRE / FCNR account of the investor. Additionally, investors based in the US and Canada should comply with the tax requirements under Foreign Account Tax Compliance Act (FATCA). Investments in mutual fund schemes on a non-repatriation basis are also available, provided the investment amount is debited to the NRO account of the NRI investor.
Picking the right mutual fund that is best suited to your risk profile is not easy, and that’s where investment advisors such as Moneyfront step in. Our experts can give you the right guidance about how to choose the funds based on your investment horizon and investment goals. Schedule to speak to us right away so that we can make your investments a hassle-free process.