An NRI or Non-Resident Indian is an individual who is a citizen of India but spends less than 183 days of any given financial year in the country.
NRIs looking to take advantage of the increasingly conducive nature of the investment climate in India have a wide range of options to consider. These options at times may be overwhelming.
At times they may receive less than stellar advice from their financial advisors or even well-meaning family members back home on where to invest their hard-earned money. They may end up making regrettable choices in their investments which benefit their advisor or relationship manager more than serving the interest of the NRIs.
As with any financial commitment, investment decisions should be based on the needs and goals of the investor. There are diversified options open to NRIs both long term and short term.
In this investment guide, we shall look into the array of options available at the NRIs disposal.
Public Provident Fund
If you are a risk-averse investor by nature, investing in the Public Provident Fund or PPF is an option you could consider. The Public Provident Fund is an investment option backed by the Government of India. Both Indians and NRIs are permitted to invest in the PPF.
At present, the rate of return obtained from investing in the PPF is 7.1% per annum.
It is to be noted that the Public Provident Fund has a lock-in period of 15 years and the ceiling for the amount that can be invested is Rs 1.5 lakh every year. As an added bonus, any amount invested in the PPF is applicable for tax deductions under Section 80C of the IT Act.
Fixed deposits are another safe investment route for those wishing to avoid the risks of the equity market. The interest rate offered varies among the different banks and also depends on the sum deposited along with the duration of the deposit.
To get started an NRI first has to open a bank account based on their needs. There are three kinds of bank accounts that NRIs can open.
NRE (Non-Resident External Account): The money stored in this account is in rupees and earns an average interest rate 0f 5%.
NRO (Non-Resident Ordinary Account): This account type is useful if NRIs have an Indian income. Incomes by way of rental, investments and pension funds are kept in these accounts. Up to 1 million US Dollars can be transferred to an overseas account every year. The interest earned on an NRO Fixed Deposit varies from 3-7% depending on the bank. Interest earned in an NRO is taxed at 30%.
FCNR (Foreign Currency Non-Resident): The money deposited in an FCNR account remains as foreign currency and is not converted into its equivalent rupee value. The amount deposited will affect the amount of interest earned. Usually, it is between 2-3%. The interest earned from this account is not taxed and can be withdrawn anytime.
Investing in Equities
NRIs who don’t mind exposing their investments to a certain degree of risk can invest in the equity market. Investing in stocks is ideal for investors with long-term goals as the value of stocks takes time to appreciate in value. But for those who are willing to wait, the equity market presents a good opportunity for wealth creation.
Blue Chip companies are often the safest to invest in, as they are insulated from the volatility associated with the share market to a large extent.
NRIs looking to invest in the Indian equity market can do so via the Portfolio Investment Scheme of the RBI. To trade in Indian stocks NRIs are required to open an NRO or NRE account and maintain a trading account as well.
A Note Of Caution
Before you choose an investment vessel, remember to consult your financial advisor and conduct due diligence before committing your hard-earned money. Do pay heed that all investments carry a certain degree of risk, which can be minimised by choosing the right mode of investment.