Recently, the steps taken by Government of India has not only motivated Foreign Institutional Investors (FII) but also NRIs Investors. Indian Government is now promoting and providing good investment opportunities to NRIs. The good thing is NRIs are equally excited and want to invest so they can contribute to the growth of Indian economy. However, many don’t have a clear understanding on what’s available on the plate. This is my attempt to add some insights –
NRIs can invest in the equity markets of India under the portfolio investment scheme (PIS) of the Reserve Bank of India. PIS is a foreign investment route to simplify the process of registration and investment for all foreign investors.
Under this scheme Non-resident Indian can purchase or sell the shares/convertible debentures of the Indian companies on the stock exchange. There are 3 simple steps after which the NRI can start trading in Indian Stock Exchange.
Open Bank Account: First step is to open an NRE or NRO account and then need an approval under PIS which allows you to trade in stock market. For the NRIs who already have NRE/NRO accounts, he can assign it as PIS account.
Demat Account: Second step is to open a Demat Account to hold shares and
Trading Account: Trading account (linked to PIS account) with an authorized broker of SEBI.
Today many banks offer help in this process of account openings and PIS Approval. Some important points to consider in regard to equity investment by NRIs are:
- An individual can only open one PIS account for buying and selling of shares.
- There are some ceilings on investments under PIS which are monitored by RBI.
- NRI can transact only in India through SEBI authorized broker.
- NRIs cannot do intra-day transactions. In simple words, NRIs can trade on delivery basis.
- Short-selling of shares is not permitted to NRIs.
- NRIs cannot trade in all Indian stocks. RBI publishes the list of stocks to invest that are eligible for NRIs.
Another option available for investment. This option also delivers high returns to the investors. You can invest in the Indian mutual funds through your NRE/NRO account. NRIs from most of the countries can easily invest in Indian mutual funds. But the NRIs in US or Canada cannot invest in Indian mutual funds. As per the rule laid out by US securities market regulators, only those fund houses, globally or locally registered with Securities and Exchange Commission (SEC) can accept money from US NRI / citizens. However, US based NRIs can invests in the India dedicated mutual fund schemes or India dedicated offshore funds. These schemes are managed in the US but invests in the Indian based companies.
Exchange Traded Funds (ETF)
Exchange traded funds can be traded exactly like stocks on the exchange. Some countries like US, UK allows you to invest in ETFs in Indian stock market. But if you want to invest in Indian based ETF then it carries market risk with an additional risk of currency fluctuations.
Real estate is one of the favorite option of investment for NRIs. There is not much restriction on the investment in the residential or commercial properties in India but they cannot invest in the agriculture land, farm house or the plantations in India or can own such property only if they have been gifted or inherited.
All the transactions related to money is in the Indian rupees and follow the normal banking channels using NRI account. NRIs can also avail the home loan facility from Indian banks or financial institutions after satisfying the eligibility criteria. The loan amount and repayment transactions is in the Indian rupees.
There are a few things which need to be taken care of before investing:
- It’s always recommended to hire a lawyer or legal advisor who can help with all legal process/documents and clear titles. Don’t make deals only through the builders or brokers as there are chances of cheating or delays or misleading information. Going through a proper channel helps avoid unnecessary mental stress.
- Be prepared with your exit options well in advance. Selling of property comes with some restrictions by FEMA (Foreign Exchange Management Act), especially in repatriation transactions.
- Remember to grab ‘No Dues Certificate’ from the seller and do a check that property have all required approvals from civic authorities for construction.
NPS (National Pension System)
NRIs are eligible and now can invest in the National Pension Scheme for their retirement objectives. RBI recently allowed NRIs to invest in NPS which is governed and managed by Pension Fund Regulatory and Development Authority (PFRDA). The minimum subscription is Rs.6000 and it will mature when investor turns 60 years old.
Subscription amount should be paid through NRE/NRO/FCNR accounts find and there will be no restrictions on repatriation of the annuity or collected amount.
I would suggest to invest in NPS only if you are going to settle in India during retirement. NPS is a complex product and not tax efficient.
NRO/NRE Fixed Deposits:
This investment option looks really attractive because of the higher rate of interest it offers. The money held in the deposit will be in the rupees. Investors can freely remit from NRE account but not in NRO account. Interest earned is tax free in India but it may be taxable in the country where you are residing.
In 2015 annual budget, a new investment option was introduced called Real Estate Investment Trust (REIT) for investment and it also allows NRIs to invest in. REITs are not new to the other countries but due to tax complexities in India it is taking time to start. Due to relaxation in FDI norms and upcoming smart city projects this option of investment looks very attractive.
There are also a few other options like – Company Deposits of public/private companies, money market mutual funds, Convertible and Nonconvertible Debentures, Government Securities Bonds Etc.
Choose the investment option which suits your needs, do consult with your tax advisor before investing as many above options are eligible for long term & Short term capital gain tax. Also, many countries have double tax avoidance agreement with India therefore all earnings from India needs to be part of calculating total tax liability.
Disclaimer: Above article was written purely with purpose of sharing information. Do not make any decisions solely on the basis of above and do consult with your Tax and investment Advisor before investing.
Author: Gayatri Jagdale