At the time of writing (Sept. 7, 2020), the Bombay Stock Exchange (Sensex) has almost climbed back to its record high of more than 40,000.
With an attractive rate of return, the Indian stock market has been a favorite investment destination for NRI investors.
That is not all. There are several asset classes through which India offers similar lucrative gains. Besides, there are the matters of familiarity with the system, dispute settlement, and sentiment.
As an NRI, what are your possible options? We take a deep dive and explore.
Best Investment Options for NRIs in India
If you are reasonably young and have a risk appetite, then purchase equity. Between the middle of 2017 to 2020, in three years, Infosys’ share price has doubled from ₹456 to ₹950. In the same period, Reliance has gone from ₹530 to ₹2,100. These are staggering returns, and with a Portfolio Investment Scheme (or what is popularly called PIS), you could invest directly.
The drawback of equity is that it requires active management—maybe not daily, but you do need to stay on top of the news cycle. Mutual funds, on the other hand, give you the best of both worlds. UTI Equity Fund – Growth has delivered 16% returns over the past year. The same is true of most reputed funds.
You could choose from equity, debt, or balanced funds. India-based funds are well managed, and besides homegrown names such as Kotak, SBI, and Motilal Oswal, there are international players like Franklin Templeton, BNP Paribas, and DSP.
Of course, as in all countries, there is an entry and exit load besides yearly maintenance fees. U.S. and Canadian residents can’t invest in all mutual funds due to the Foreign Account Tax Compliance Act (FATCA). FATCA requires complex filing by the mutual fund. You have to check with individual funds about their status.
Fixed Deposit (FD) is the age-old avenue for investment in India. If you want peace of mind and minimum hassle, there simply is no better alternative.
NRIs can’t invest in regular FD accounts but through NRE FD.
The tenure varies between one and ten years, and the interest rates from 4.9% to 7.7%. Keep in mind that it is a near risk-free investment, and a Certificate of Deposit (CD) fetches no more than 0.5-1% in the U.S. The investment is protected by the Deposit Insurance and Credit Guarantee Corporation up to ₹5 lakh. The interest earned in India is tax-free and can be repatriated (subject to an aggregate ceiling on NRO/NRE accounts).
Further, informally, it can be stated that any FD in a well-known public sector bank is more or less guaranteed by the Indian government. After all, in 2002, the government had bailed out UTI. As of April 1, 2020, the Oriental Bank of Commerce and the United Bank of India have merged with Punjab National Bank.
The possibility of any customer having to take a haircut (reduction in asset value) is quite remote.
With the ease of availability of home loans since the turn of millennium, the real estate market has reached stratospheric levels as demand surged.
Prices have gone up by more than 500% in the past 15 years in several pockets. The most significant growth has been in condominium prices as the rental market has grown steadily in Bengaluru, Pune, and Ahmedabad.
In 2018-2019, the growth slowed slightly due to lack of liquidity, but it is expected to surge again in the coming years.
If you do not have a large amount to invest, buy an apartment outside the big eight – Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai, and Pune.
Tier-II cities such as Patna, Vizag, and Bhubaneshwar are expected to deliver smart returns in the coming years. The emergence of websites such as 99acres and MagicBricks has made it easier to buy, sell, and rent without employing the local tout.
Note: We don’t endorse any of the housing search websites. The above-mentioned websites are mere examples of the options you can use.
There is no need for RBI permission, and payment can be made from regular NRE/NRO accounts. However, an NRI cannot buy agricultural land (yet).
National Pension Scheme
An NRI can also invest in the National Pension Scheme. All that is needed is a valid PAN card (this condition is true for a PIO also) and passport number (passport may be Indian or not).
The process is simple and can be availed from the website of almost any sizable Indian bank. You have to open an account by providing your PAN and passport details, followed by a digital photo upload.
The minimum monthly contribution is ₹500 and, annually, at least ₹6,000. There is no upper limit. You can optimize returns versus risk with options to invest in various combinations of equity, corporate debt, and government bonds.
There is, however, an age limit of 60, beyond which you can no longer invest.
As an emerging market, India has real potential. By PPP GDP, it is already the world’s third-largest economy. This is a fantastic time to invest in India. Ensure that you split your investments across different avenues to protect your corpus, and expect an average return that is only dreamed about in developed economies.
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