There are 36 million NRIs in the world and they are always looking to invest in India. To help with this we list down Best NRI Investment Options In India along with some High Return Investments.
- 1 NRI Investment Options In India – Why NRIs want to Invest in India?
- 2 Fixed Deposits
- 3 Direct Equity
- 4 Mutual Funds
- 5 National Pension System
- 6 Real Estate
- 7 Certificate of Deposits
- 8 ULIP(Unit-Linked Insurance Plan) + Traditional Insurance Plans
- 9 Government Securities
- 10 PMS (Portfolio Management Services)
- 11 NCD (Non-Convertible Debentures) or Corporate FDs
- 12 Small Saving Scheme like PPF, SSA
- 13 NRI Investment Options FAQs
NRI Investment Options In India – Why NRIs want to Invest in India?
There are mainly 3 reasons why NRIs are looking to invest in India.
- Personal Attachment to India: Most NRIs are born in India and its very natural to have attachment to the place you were born or lived most part of your life. Additionally they have close relatives out here which further encourages to maintain that attachment.
- Growing Economy: India has been an upbeat economy for last 25 years – giving pretty high returns specially in equity markets and real estate.
- Good Diversification: Investment in India can help NRIs diversify their investment portfolio to earn higher but stable returns.
Fixed deposits are quite popular investment option not only for Indians but also for NRIs. This is because of the guaranteed return offered by fixed deposits along with the safety and convenience it offers. Once you have any relationship with the bank, opening FD accounts is very easy and require minimum documentation as the bank already has all of the required details.
NRO Fixed Deposit (Non-Resident ordinary account)
NRO is an account to manage income earned in India by an NRI. It provides a good rate of interest and also has a low risk. The added advantage to an NRO account is that you can also use it to receive incomes from direct equity, mutual funds, dividends or rental. Interest earned on an NRO account is taxable in India at marginal income tax rates. Also banks deducted TDS at the rate of 31.2% (including cess) on the interest earned. If you have to pay taxes in both countries for the same income, you may apply for a refund of tax in accordance with the Double Taxation Avoiding Agreement (DTAA).
Which bank pays highest interest on NRO Savings Account?
Most banks today pay interest in the range of 2% to 3% on their savings account. However there are banks who can pay up to 6%. We have compared the interest rate offered by all banks in India across different balances here.
NRE Fixed Deposit (Non-Resident External account)
NRE is an account to transfer earnings from foreign to India. Expected interest on FDs in NRE account ranges from 4% to 7%. Interest earned on it is non-taxable in India. But you may have to pay in your countries. If you live in a country like UAE, Saudi Arabia, and Kuwait you do not have to pay in these countries, and on another hand, if you live in a country like the USA or Canada you may have to pay taxes.
Get Highest NRE FD Interest Rates
NRE Fixed Deposit scheme is a very popular investment option for NRIs. The interest earned is tax free. To help you choose the best NRE FD, we compare the interest rates on fixed deposit across all major 48 banks in India including government, private, foreign and small financial banks in India every month.
FCNR (foreign-currency Non-Resident account)
You can open an FCRN account through which you can invest in fixed deposits with major banks in India in your foreign currency. Almost all banks have FCNR accounts for following currencies – USD, GBP, EUR, YEN. However for less popular ones like HKD, SGD, etc you can open account in ICICI bank. FCNR deposits are opened for a period of 1-5 years. Interest earned on deposits is tax-free for NRI and RNOR(Resident but not ordinary resident). The best thing about this account is that it is free from foreign exchange fluctuations.
Latest FCNR Rates for USD
FCNR is a great investment as its safe and offers higher returns that the country you live in. Also interest earned on FCNR deposits is tax free in India. FCNR deposits also do away from the currency fluctuation risk. You can get the latest rate on FCNR interest rates here.
NRE Vs NRO Account
The table below gives a comparison of NRE Vs NRO Account. You can choose which one suits you.
|Particulars||NRE (Non-Resident External)||NRO (Non–Resident Ordinary)|
|Who can Open Account?||NRIs/PIOs/OCIs||Any person resident outside India|
|When can one open Account?||After becoming NRI||While leaving India (even before becoming NRI)|
|Deposit Allowed||Only overseas income in foreign currency||Income originating in India and overseas income|
|Joint Account||In the names of two or more NRIs. With a resident close relative on ‘former or survivor basis’||In the names of two or more NRIs or Resident Indian|
|Repatriation||Freely repatriable||Repatriated up to USD 1 Million in a financial Year with some restictions|
|Transfer-ability of Funds||NRE to other NRE & NRO accounts||NRO to NRO account only. NRO to NRE accounts requires documentation.|
|Tax on Interest||No Tax in India||Taxable as per Income Tax Slab|
|TDS on Interest||No TDS||TDS @ 31.2%|
NRE VS NRO Account
As you become NRI, you can no longer use the regular savings account. You need to open NRE or NRO account. We have a detailed post on NRE VS NRO account and which one is the right choice for you?
Tax on Fixed Deposits for NRIs
- There is NO Tax on interest earned on NRE FD & FCNR deposits. There is No TDS on these deposits too.
- Interest earned on NRO is taxed at marginal income tax rate in India. There is TDS of 31.2% on NRO account for NRIs
You can also do direct investment in the stock market to earn higher returns in the long term but you have to note that high return comes with high risk. You can invest in the Indian stock market through the PNS (Portfolio investment scheme) of RBI. For this, you have to open a Demat account with an Indian broker and should have an NRE/NRO account and also can have a trading account. This is high risk high reward investment – so do not invest before any fundamental analysis and research because it may lead to loss of your capital.
Things to know before investing in the Indian stock market
- An NRI can only invest in secondary markets
- Do not trade in banned stocks
- An NRI cannot invest in lottery businesses, gambling, betting, and also casinos
- An NRI cannot invest in chit funds and Nidhi companies
Tax on Equity for NRIs
- If you sell your investment within a year, the gains are termed as short term capital gains else its long term capital gains.
- Long term capital gains is taxed at 10.4% while short term capital gains is taxed at 15.6%.
- TDS is deducted at 15.6% for short term capital gains and at 10.4% for long term capital gains
- Dividend paid is also taxable at your income tax slab rates and a TDS of 20.8% is deducted
Mutual Funds are one of the Best NRI Investment Options In India. You can invest in both stocks or fixed income using equity and debt mutual funds respectively. NRIs can invest in Indian mutual funds but they have to follow the rules and regulations of the Foreign Exchange Management Act (FEMA). Some Mutual Fund Companies do not allow investments from NRIs especially based out of USA and Canada – mainly because of extensive compliance and paper work required by these countries.
As per Economic Times following 8 fund houses are accepting investment from Canada & USA.
- Birla Sun Life Mutual Fund
- SBI Mutual Fund
- UTI Mutual Fund
- ICICI Prudential Mutual Fund
- DHFL Pramerica Mutual Fund
- L&T Mutual Fund
- PPFAS Mutual Fund
- Sundaram Mutual Fund
Tips to pick mutual funds for Investment
- Decide how much risk you can afford and what are your goals
- Try to choose the mutual fund with a low expense ratio
- Go with an experienced management team
- Try to diversify in mutual funds but do not over-diversify
- If you do not able do a research you can go through financial planners or advisors
- Invest in Direct mode – in the long run you would have higher returns as compared to regular funds
Tax on Mutual Funds for NRIs
The Mutual Fund taxation depends on the type of mutual fund. MFs investing more than their asset in 65% is termed as equity MFs while all others are called non-equity funds.
- The tax treatment for equity mutual funds is same as stocks.
- For non-equity MFs – If you sell your investment within 3 years, the gains are termed as short term capital gains else its long term capital gains.
- Long term capital gains is taxed at 10.4% while short term capital gains is taxed at marginal income tax rate.
- TDS is deducted at 31.2% for short term capital gains and at 10.4% for long term capital gains
- Dividend paid is also taxable at your income tax slab rates and a TDS of 20% is deducted
How Tax on Mutual Funds Impact your Returns in FY 2021-22?
Equity Mutual Funds are one of the best investments to generate wealth in the long run while Debt mutual funds are more suited to park money for the short term (as an alternative to fixed deposits). But as in case of any investment, the final returns are determined on the way these Mutual Funds are taxed. We discusses tax on mutual funds for FY 2021-22 [AY 2022-23] in all details.
National Pension System
NPS (National Pension System) is a pension scheme managed by PFRDA. Both residents as well as NRIs are eligible to invest in the same. NRI having age between 18-70 years can open an NPS account. To open an NPS account online you may be required an Aadhar card and Pan Card. You can also open the account by using your NRO or NRE bank account.
This scheme is developed for savings and investment so that one can take care of his retirement. You can also choose how much funds you want to invest in equity, corporate bonds and government securities. If you want high return (& high risk) you can allocate as high as 75% to equity. For conservative investors, you could invest 100% in bonds.
As this is a pension fund, there are some withdrawal limitations
- You can only withdraw 20% of funds deposited before the age of 60 years and you can withdraw the remaining 80% by the way of annuity
- After attaining the age of 60 years you can withdraw the 60% of funds invested and withdraw the remaining 40% by the way of annuity.
- If your maturity amount is less than Rs 5 Lakhs, you can withdraw 100% of it.
Real estate in India has shown massive growth in the last 15 years and also shows the future scope of growth. Therefore real estate is one of the Best NRI Investment Options In India. You can buy property by taking care of some factors like price, type of land, future growth of the nearby area, the risk involved in it and etc. Many NRIs acquired flats, villa and give them for rent.
An important point to note is this an NRI cannot invest in agricultural land in India.
Tax on Real Estate for NRIs
Tax on Rental Income for NRIs
- A standard deduction of 30% is allowed on rental income. Thereafter the rent received is taxed at income tax slabs applicable to you.
- Tenants have to deduct 31.2% TDS from the rent paid for NRIs.
- You can also claim deduction for interest paid on home loan up to Rs 2 Lakhs.
- Additional deduction can be availed for repairs, home insurance, property tax, etc.
Tax on Sale of Property for NRIs
- The gains are long term capital gains if the property is held for more than 2 years. In this case it’s taxed at 20% after indexation benefit.
- Short term capital gains is taxed at marginal tax rate applicable to you.
Certificate of Deposits
Certificate of deposit is a short investment and works like FD with an advantage to endorse it to someone. But an NRI cannot sell the certificate of deposit to another NRI in the secondary market.
It gives a fixed return and has a low risk. It is generally issued for a period of 7 days to 1 year.
A CD has a maturity date and on that holder will receive the amount plus interest on the principal amount.
ULIP(Unit-Linked Insurance Plan) + Traditional Insurance Plans
NRI can invest in ULIP plans and other traditional insurance plans under the Foreign Exchange Management Act (FEMA). Among the insurance products – ULIP is the most popular one. This is because it offers both insurance & investment option in stock market. However we do not recommend investing in ULIPs. You would be better off investing in relevant Mutual Funds instead.
From April 2020 an NRI can invest in government securities like bonds without any limit in specific instruments. An NRI can invest in plans of 5 years, 10 years, and 20 years plans. The G-SEC could be one of the Best NRI Investment Options In India in fixed income because
- G-sec have extremely low risk of default as its issued by government of India
- It offers repatriation which is preferable by NRIs because they do not want to reinvest again and again
PMS (Portfolio Management Services)
An NRI can invest in Portfolio Management Services (PMS) through their NRO/NRE account. PMS can turn to be a good investment option because of following reasons:
- Run by professional management
- The portfolio would be more tailored to your needs an your risk taking ability
- Focusing on maximising returns and minimising risk
- Recommendations are unbiased
- They guaranteed the client satisfaction
NCD (Non-Convertible Debentures) or Corporate FDs
Non-convertible debentures (NCD) are instruments issued by companies to the public for long-term appreciation of capital. NCD has a fixed rate of return which will be paid for the number of years as decided. At the end of maturity holder of NCD will get the maturity amount. The risk and the rewards (interest rate) varies based on the company credit ratings. It offers higher interest rates than normal bank fixed deposits albeit with higher risk. If an NRI invest in NCDs, those NCDs cannot be redeemable before the period of 3 years.
Learn All about NCDs
NCDs or non-convertible debentures or more popularly known as Bonds are a bit complex investment products. You must understand the product, risk involved, the taxation on interest received and when you sale it. We have done a separate post regarding this titled – Know all about NCDs.
Also you can keep track of upcoming NCD issues here.
Small Saving Scheme like PPF, SSA
NRIs are not allowed to invest in small saving scheme like PPF or Sukanya Samriddhi Account. This is because these small saving schemes are paid higher interest rate and is subsidised by the Government of India. However if you had already opened your account before becoming NRI, you can continue investing in the same till maturity.
NRI Investment Options FAQs
✅What are the best investment options for NRIs in India?
It totally depends on your requirements whether you want to go for higher returns or stable returns. If you want higher returns you can go with direct equity and if you want stable returns you can go with debentures, mutual funds, and less equity.
✅Should I invest in Indian markets?
If you want to-
• Increase your returns
• Decrease the country risk
• And diversify your portfolio
You can invest in Indian markets in options like equity, debentures, mutual funds, and FDs.
✅Can an NRI invest in Indian stock markets?
Yes,an NRI can invest in Indian stock market through PNS (Portfolio investment scheme) of RBI.
✅Does an NRI have to pay tax in India?
The part of income that is earned in India is taxable but there are options like interest earned on NRE accounts that are non-taxable. If you pay double tax for an income in two different countries you can apply for a refund of tax in accordance with the Double Taxation avoiding Agreement (DTTA).
✅Can an NRI can invest in post office schemes in India?
You cannot invest directly into the post office schemes but you can invest in them indirectly by opening a joint account with an Indian citizen to become qualified to invest in post office schemes.
✅Can an NRI have 2 PIS accounts?
You can open two PIS accounts with any of the designated banks one with NRE status and another with NRO status. But you cannot have more than 2 trading and investment account.