What do you mean by NRI? What are the best NRI investment options in 2018-2019?
The term ‘NRI’ stands for Non-Resident Indians. An NRI is a person who has left India for business or employment opportunities and is settled in a foreign country. This is especially common and frequent in today’s scenario where the world is one big global village. Moving from one country to the other is not as difficult as it used to be for the older generations.
I had a friend who moved from India to the United States in late 2000s. He had initially moved to the US for his higher education. Post his degree, he secured a job in the US and chose to settle there. Eventually he was married, had children, and even took his parents along with him to the US. This is a typical example of how an NRI moves abroad.
NRI Investment Options in India for 2018-2019
Let us see, what are the various NRI Investment options in India for 2018-2019 and which one is the best investment for NRI?
- Mutual Funds
- Stocks and Shares
- Real Estate
- Fixed Deposits
- Government Securities
Also ,what are the tax free investment options for NRIs through NRE/NRO account?
What is NRI Investment – Meaning?
For a Non-Resident Indian who stays and works abroad, the main problem that he faces is where to invest his hard earned money. In my friend’s example, he basically has two options – should he invest it in the US where he and his family is currently settled, or should he invest it in India, which is home for the entire family. This confusion arises from the fact that an NRI cannot stay abroad forever. Also, the tax policies in the country of stay, such as the US, could very well put him in a disadvantageous situation if he chooses to invest in the markets there.
Therefore, he will explore the second option i.e. Investing in India. The major question that comes to one’s mind is – Is an NRI allowed to invest in India? The answer is yes, he is! The Indian government has eased regulations and ensured that it is extremely easy for foreign investors to play in the Indian markets. This does not mean there are no rules regarding the same. But this has definitely been made a lot easier.
Also Read : NRI PPF Latest Account Notification 2018
Why would an NRI invest in India?
The answer is simple answer. Arbitrage! What is arbitrage? It is the act of taking advantage of difference in rates in different markets. E.g.:The rate of interest on a simple personal loan in the US is around 3%. The rate of interest on any other investment in the US is around 2%. Since the American markets are saturated and mature, they yield relatively low returns for investors. So an Indian in America would want to take advantage of higher returns in India, and will invest in the Indian markets. The returns in India are around 15% for equity investments. Even if he does not have cash, he could borrow money at 3% and invest that money here in India. As long as the foreign exchange movement is less than the difference in rates i.e. 15% – 3% = 12%, he would make a profit on the investment.
How much tax will an NRI pay on the profits earned?
The short-term capital gains rate for an NRI is 15% on profits, and there is no tax on long-term capital gains for up to Rs. 1 lakh profit within a year. Short-term refers to any equity investment held for less than a year and debt instruments held for less than 3 years. Any investment which is over and above one year for equity investments and three years for debt investments will be called as long-term gains.
Therefore, if an NRI purchases equity on 1stJanuary, 2018 and holds it up to 30thJune, 2018, his investment would be termed as short-term investment. All profits accrued in this case are taxable. However, , had he held the investment till 28thFebruary, 2019, it would have become a long-term investment since the period is over one year. The profits, in this case, would be exempt from tax if the gain is less than Rs. 1 Lakh. Otherwise, he has to pay 10% tax on the gain.
NRI Investment In India – Rules
Is it this simple? Of course not! There are also various rules and regulations governing how an NRI can bring in money for his investment. There are three types of accounts an NRI can open in India from which he can make his investments – debt or equity.
How to do investment from NRE Account ?
Non-Resident External Rupee Account (NRE)
These are accounts opened by an NRI after he gets his NRI status. It is allowed and possible to have these accounts held as joint accounts with other NRIs or residents. If these are held by residents, only close relatives are allowed as joint account holders.
Can a NRI have a Savings Account in India?
An NRI can open a NRE account as a savings account, fixed deposit or even as a current account.
Tax free Investments for NRI
The savings kept in an NRE account are repatriable back to the country where the money was earned. When he comes back to India, this automatically gets transferred into a resident account. Also, the interest generated from these savings are tax free.
Non-Resident Ordinary Rupee Account (NRO)
These are accounts opened by an NRI after he gets his NRI status or sometimes even before becoming one. It is allowed and possible to have these accounts held as joint accounts with other NRIs or residents. An NRI can open a NRO account as a savings account, fixed deposit or even as a current account. All savings can be kept in an NRO account but only interest is repatriable back to the country where the money was earned. When he comes back to India, this automatically gets transferred into a resident account. The interest generated from these savings are fully taxable.
Foreign Currency Non-Resident Bank Account (FCNR)
These are accounts opened by an NRI after he gets his NRI status or sometimes even before becoming one. It is allowed and possible to have these accounts held as joint accounts with other NRIs or residents. If these are held by residents, only close relatives are allowed as joint account holders. An NRI cannot open a FCNR account as a savings account, or even as a current account. Only fixed deposit accounts are allowed under the FCNR rules. All savings can be kept in the FCNR account and are repatriatable back to the country where the money was earned. When he comes back to India, this automatically gets transferred into a resident account. The interest generated from these savings are fully exempt from tax in India.
As a general rule, all investments that an NRI intends to make in India can be made by only from the above accounts. An NRI cannot directly invest from his local bank account in the foreign country. It is also allowed to freely transfer funds between all the above accounts, except the transfer of funds from FCNR account to NRO account.
Best Investment for NRI in India -2018-19
Following are the best investment for NRI in India for FY 2018-2019
An NRI can invest in government bonds, and long-term securities issued by the Government of India. These bonds should directly be purchased from the proceeds available in the NRE/NRO or FCNR accounts. Government securities give returns of about 7% to 8% in today’s market.
Can NRI invest in Mutual Funds in India?
An NRI can purchase units of mutual funds directly by going to the Mutual Fund House website. They can also enter into Systematic Investment Plans (SIPs) by giving direct debit details.
US based NRIs can invest in Mutual Funds in India as explained in the example in the beginning.
How NRI can invest in Mutual Funds?
Again, similar to any other investments, this has to be done through NRE/NRO or FCNR account. Equity mutual funds give returns of about 15% to 18% in today’s market.
Can NRI invest in Real Estate business in India?
FEMA regulations states that all capital account transactions are allowed by non-residents except for investments in agriculture land. As per the process, these have to go through the NRE/NRO or FCNR accounts. NRIs can invest in real estate projects which are going to be completed in 3 years, or even in completed real estate properties such as residential apartments, commercial properties, land etc. The expected return from these in the current market is around 8%.
Can NRI invest in Post Office Schemes in India?
No, NRIs can not invest in Post Office Schemes in India.
Can NRI have demat account?
An NRI might have an existing demat account before getting the NRI status.
How NRI can invest in Shares/Stocks?
The question here is whether an NRI would be able to continue investing in shares and stocks from that demat account?
The answer is No! He needs to close that account and surrender it. All existing shares can however be transferred to his NRO demat account. He also needs to procure something called the PINS and PINS stands for Portfolio Investment Scheme Account.
Documents Required for NRI DMAT Account
The documents required to get the PINS account are as follows:
- Copy of a passport-size photo of the NRI
- Address proof in India
- Address proof abroad
- Copy of visa and passport
- FEM declaration
- Cancelled cheque leaf of NRE/NRO account
In Conclusion, The world is only getting smaller and we have people cutting across borders and erasing invisible lines between countries. So,as a rational investor, it makes sense to invest in the best NRI investment opportunities without being barred by market regulations, government interventions or an unusual inflation for that matter. Therefore, By easing the rules for NRI investments, the government has made it extremely easy for NRIs to invest in the country. All they would need to do is open an NRE/NRO or FCNR account and invest through the same.Also, they would be able to enjoy risk-adjusted returns and put one over inflation. Here’s to happy investing!
Finally,What is your view on NRI Investment options? While We have tried to cover almost everything about NRI Investment. Also,What according to you is the best NRI investment option in India? Please share!!