Investment Options for NRIs

Investment-Options-for-NRIs

 India is working towards creating a transparent and clean economy. The government is making several changes and introducing new rules and regulations to achieve its goal of becoming an advanced country. The advancement of a country requires a lot of cash flow, and foreign investment is one of the many sources of cash inflow.

Indian government encourages investment in India from abroad. The Non-Resident Indians (NRIs) are the direct sources of cash inflow in India. With the passing time, the NRIs have shown a keen interest in parking their funds in Indian Investments. The Foreign Direct Investment (FDI) that can be brought through NRI’s is immense. Therefore, to promote foreign investments, the government has simplified the rules and regulations and provided promising NRI investment options which in a way will help boost the economic growth of our country.

The weak position of Indian Rupee as compared to NRIs residing country currency could be beneficial for them in certain cases. Such as in some cases they can earn more returns from their investments.

As such the NRIs are free to invest in different investment options but the transfer of profit to their residing country is controlled. The rules related to return on investment vary for different investment options.

  • In Repatriation Scheme, the profits earned can be transferred back to their country.
  • In Non-Repatriation Scheme, the profits earned cannot be transferred back to their country.

It is essential for NRIs to open a bank account before investing in India. They can manage their returns or profits with the help of these accounts. The government has allowed three types of accounts that NRIs can open in India. They are:

  • Non-Resident Ordinary (NRO) Rupee Account
  • Non-Resident External (NRE) Rupee Account
  • Foreign Currency Non-Resident (FCNR) (Bank) Account

The government of India has provided several Investment Options for NRIs to encourage them to invest in India. Some of the investment options offered are as follows:

Recommended reading: Corporate Services Advisory

GOVERNMENT SECURITIES

  • It is a bond or other type of debt obligation that is issued by a government with a promise of payment when the security matures.
  • These are considered a secure investment option.
  • Dated government securities are medium to long-term securities with fixed or floating interest rate.
  • The NRIs can easily buy these securities.
  • They are just required to transfer the funds to their Indian Authorised Dealer Bank account, and the bank on their behalf can purchase/sell the securities as per their advice.
  • The bank will credit the interest earned on the investment in the account.
  • Some of the dated government securities are as follows:
  • Capital Index Bonds
  • Floating rate government bonds
  • Fixed rate government bonds
  • Zero Coupon Bonds

MUTUAL FUNDS

  • The NRIs can buy units of mutual funds either straight from the issuer or can use online method.
  • The interested NRI is provided with an offer document for reading and understanding the details.
  • After reading, the NRI has to fill a form clarifying the scheme name and number of units of funds he/she wants to buy.
  • The investment in the funds can only be made in Indian rupee as foreign currency is not allowed.

TREASURY BILLS

  • These are short-term (up to one year) borrowing instruments of the Government; it enables the investors to park their surplus funds with less market risk. T-bills are issued by Reserve Bank of India (RBI) at regular intervals.
  • These are released at a discount to face value, but they don’t pay interest.
  • The bills can be bought by participating in the auctions organized by the RBI.
  • At the time of redemption, the investor receives the face value.
  • The NRI can make payments through their Indian accounts.

NON-CONVERTIBLE DEBENTURES (NCD), CONVERTIBLE DEBENTURES (CD), STOCKS

  • An NRI can purchase shares once he/she gets Portfolio Investment Scheme (PIS) approved from RBI.
  • They can also buy and sell shares on the secondary market.
  • Most of the nationalised banks have got approval to offer PIS services to the NRIs.
  • The scheme does not limit the purchase of the shares, but one can also invest in non-convertible debentures, convertible debentures, equity-linked mutual funds.
  • After opening a PIS account, Online Trading A/c and Demat A/c has to be opened. With the three accounts, the NRI is free to trade shares online.
  • An NRI can only sell his/her share after holding them for at least two days.
  • An NRI shall not exceed 5 percent of the paid-up capital of the company subject to an overall ceiling of 10% of the total paid-up capital of the company.
  • The companies issue debentures to public to raise funds and some of these debentures can be converted into shares at the time of maturity.
  • These are known as Convertible Debentures.
  • The Non-Convertible Debentures cannot be converted into shares when they mature.

PERPETUAL BONDS, EXCHANGE TRADED FUNDS (ETF)

  • Perpetual bonds are similar to regular bonds, but without fixed maturity, i.e., they cannot be redeemed.
  • The companies pay fixed interest to the holder of the bonds.
  • The government, banks, etc. who require funds for extended time issues these bonds.
  • NRI’s can purchase Exchange Traded Funds (ETF) by opening an NRI-Trading account and can then trade them online.

MONEY MARKET MUTUAL FUNDS

  • These are short-term debt certificates issued by the government of India just like T-bills.
  • These are secure investments but with very fewer returns.
  • For NRIs the profits earned by these funds are taxable, and the investment money cannot be repatriated to the residing country.
  • The NRI has to inform the bank about the investment plan, and the bank on their behalf seeks permission from the RBI.

REAL ESTATE PROPERTY

  • The NRIs can purchase any domestic or commercial property in India except a farmhouse or agricultural land.
  • To buy property they can only make payment from their Indian account.
  • The payment can only be in INR and not in foreign currency.
  • The profit earned on the assets cannot be transferred to their residing country.

COMPANY DEPOSITS

  • The NRIs also have an option of investing in both public and private companies.
  • The organizations are required to confirm a limit from RBI before taking any money from NRIs.
  • After receiving approval from RBI, the company can receive the money directly from the foreign bank or the Indian Account of the NRI.
  • The company has to share details related to money received from the NRI.

BONDS ISSUED BY PUBLIC SECTOR UNDERTAKINGS (PSU)

  • The NRIs can also invest in bonds issued by PSU.
  • They issue bonds when they are in need of funds for the expansion or modernization of their business.
  • It is a secure investment option as when the Ministry of Finance gives permission to issue the bonds then only they are issued.

With the government providing so many benefits and flexibility in rules of foreign investment the NRIs can take advantage of the opportunity and invest in India without much hassle.

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