- Bank Fixed Deposits
- Mutual funds
- Direct Equity
- Real estate sector
- Investment in Bonds/Government Securities
- National Pension scheme(NPS)
1) Bank Fixed Deposits: This is the most common and one of the favorite mode of investing by NRIs. There are three types FDs investment available for NRI:
- 1. NRE (Non-residential external)- This can be in the form of savings, current, recurring or fixed deposits and can be maintained in Indian rupees. One can deposit only foreign currency in this account, which gets converted into domestic currency at the time of deposit. In order to have NRI deposits, you need to have an NRE account first. NRI Deposits can earn an interest ranging from 7-9% per annum. The principal and interest earned on NRE deposits are not taxable in India. This is best suited for NRIs who want to transfer their foreign income to Indian accounts.
- 2. NRO (Non-resident ordinary) – An NRO account, on the other hand, is a savings or current account held in India for the NRIs to manage their income earned in India. Hence, it is a good way for account holders to deposit and manage their accumulated rupee funds. You can apply for an NRO account jointly with a resident Indian in which the bank will give you both an NRO debit card each. It is even feasible to transfer money from your current NRE account. However, the interest you earn in this account is subject to Tax Deducted at Source (TDS).
- 3. FCNR deposits (Foreign Currency Non-Repatriable account deposits)- This is a FD foreign currency account and not a savings account. Deposits in this account can be made in any of the major currencies like US dollar, UK pound, Canadian dollar, etc. You can open an FCNR account for a minimum term of 1 year and maximum term of 5 years. Such deposits can be held and withdrawn only in recognized foreign currencies with the interest being freely repatriable.
2) Mutual funds: There are domestic mutual funds that invest in different equity and debt securities, which are available for investment by NRIs. These offer good returns and do not require monitoring as in the case of investment in direct equities. However, NRIs may face some hurdles in investing due to strict guidelines by the FATCA. You are required to have an NRE or NRO Account for investing in the domestic mutual funds. Furthermore, you have to invest in INR and not in any foreign currency.
3) Direct Equity: NRIs are eligible to invest directly in the stock market under the Portfolio Investment scheme (PINS) of RBI. An NRI has to take permission under PINS scheme for buying and selling shares in India. NRIs need to open a Demat account and brokerage account with SEBI registered brokerage firm for this purpose. An NRI can invest upto 10% of the total paid up capital of a company listed on the domestic exchange.
4) Real estate sector: NRIs are allowed to invest in the Indian realty market. They can buy commercial & residential properties but are prohibited from buying agricultural land. Although, you can have ownership of agricultural land through inheritance or gift. All settlements subjected to real estate are to be done via NRO accounts only, which have repatriation restrictions. So, you need to plan things well in advance by hiring a professional who will guide you with all the legal documentation and procedures at the time of purchase/sale.
5)Investment in Bonds/Government Securities: You can invest in bonds and NCDs issued by the government, government-owned entities, and corporate for better liquidity and returns. To make these investments, you need to have an NRE/NRO bank account and a PIS permission letter.
6) National Pension Scheme (NPS): Only NRIs who are Indian citizens can contribute to NPS. You can invest in NPS if you have retained your Indian citizenship and want to retire in India. Once you give up your Indian citizenship, the account is closed. NPS is tax-effective and follows EET (Exempt-Exempt-Tax) structure for taxation. NPS offers good returns and can be seen as a good investment avenue.