What is a Non-Resident Indian (NRI)?A non-resident Indian (NRI) is a citizen of India who has spent less than 183 days of the financial year (or tax year) in India. The tax year stretches from April 1st to March 31st in the succeeding year. This means you had to be outside of India between April 1st of last year until March 31st of this year for more than 182 days. NRI’s are still citizens of India but they don’t pay tax there.
NRI’s often struggle to invest back home in India. We’ll provide you with all the basics of good NRI investment options in India below, but let’s first take a look at why it is important to invest.
4 Reasons Why an NRI Should InvestHere are four reasons why you should invest and seek the best investment in India for NRI.
Prepare for RetirementPreparing for your old age starts today. Well, it should actually have started yesterday already. You need to put money away in in different forms of investment to ensure a secure retirement plan. The amount of money you save and invest will determine the standard of living you can afford when you retire.
Get ReturnsMoney used correctly will make more money. Investing money is a good example of this. Whatever you invest will grow according to the interest rate or growth rate on your NRI investment in India. The interest rate of an investment usually shows how risky it is. A higher interest rate means the investment has a higher risk connected to it. Invest wisely to ensure good returns without taking a risk you can’t afford.
Send Money to FamilyYour current salary is probably enough to help you and your immediate family. But, when you invest in NRI investment options in India you’ll have more income to spend. You can send some of your extra income to family members back home. Better yet, dollars converted to rupees may give your family the help they need.
Build Financial AssetsInvesting helps to grow your financial wealth and build up financial assets. For instance, buying property means it can be rented out for rental income. It can also be used as security whenever you want to apply for loans. Secured loans get lower interest rates which lead to cheaper loans. The best investment for NRI in India will help to grow your financial assets the fastest.
8 Best NRI Investment Options in IndiaMany NRI’s live under the misconception that they aren’t allowed to invest in India. But that is simply not true. Here are the 8 best investment options in India for NRIs.
1. Fix Deposit Bank AccountsThis is probably the most common form of NRI investment in India. With a fixed deposit, you deposit money into an account and it is kept safe for a predetermined amount of time. You can’t withdraw the funds before the period is over. The money plus the interest is paid out to you after the period has ended.
Three Types of Fixed Deposit AccountsThere are three main types of fixed deposit accounts that serve as NRI investment options in India:
Non-Resident External Account (NRE) – The money of such an account is kept in rupees. It’s easy to return the money to dollars. Interest rates on these accounts vary depending on the deposit size and/or bank. You can expect interest rates to be around 7% to 9% per year.
Non-Resident Ordinary Account (NRO) – This account type is generally used by NRI’s to control their Indian income. Rent income, dividends from investments, or pension funds can be paid into these accounts. These accounts have a current limit of $1 million that is allowed to be transferred from this account to a U.S. account per year. Take note the interest earned on an NRO fixed deposit is taxed at a rate of 30%.
Foreign Currency Non-Resident (FCNR) – Foreign currencies are stored in these accounts. It helps to avoid the currency fluctuations that take place in financial markets. The currency you deposit into the account will determine the interest rate of it. Dollars should cause an interest rate of between 2% to 3%. You can take money from this account at any time and it is not taxed by the Indian government.
2. Mutual FundsMutual funds are large pools of money of investors’ money which is managed by qualified and certified professional fund managers. Mutual Funds currently operate under strict regulations of the Securities Exchange Board of India (SEBI). Mutual funds are a bit riskier than fixed deposits, but that is why the returns of mutual funds are more than that of fixed deposit accounts.
An NRI needs an NRE, NRO, or FCNR account in India to be able to invest in an Indian mutual fund. These accounts help to facilitate the investment and payout process.
Here are eight mutual fund houses that accept investments from the U.S.:
DHFL Pramerica Mutual Fund
Birla Sun Life Mutual Fund
ICICI Prudential Mutual Fund
SBI Mutual Fund
UTI Mutual Fund
L&T Mutual Fund
PPFAS Mutual Fund
Sundaram Mutual Fund
Mutual funds have two predominant categories and they are taxed differently.
Equity Funds – More than 65% of the fund contains stocks (equity). You will pay 15% tax if you sell the investment within the first year. The investment is tax-free after owning it for more than one year.
Debt Funds – Less than 65% of the fund is invested in stocks (equity). NRI’s pay 30% tax after selling it within 3 years of owning it. You will only pay 20% tax when you sell it after owning it for more than 3 years.
3. Direct EquityYou can always invest your money into stocks on the National Stock Exchange of India Ltd. (NSE) if you feel you have enough knowledge. You will need to be part of the Portfolio Investment Scheme (PINS) of the Reserve Bank of India (RBI). This will allow you to trade stocks on the NSE.
You will need the following three things:
An NRE/NRO savings account dedicated only for your PIS purposes.
A dematerialized account that holds shares in an electronic form.
A SEBI trading account with a registered broker.
4. Real EstateInvesting in a property is one of the favorite NRI investment in India. It serves as a good long term investment with steady growth (provided the property is in the right location). Make sure which type of bank account you use to buy and sell a property (NRO, NRE, or FCNR). The rules applicable to the account will determine how much money you will be allowed to return to dollars in the end.
5. Bonds and Non-Convertible Debentures (NCDs)Bonds and NCDs have risk involved, but it can also serve as a good investment option.
There are three main bond categories:
PSU Bonds – Public Sector Undertakings Bonds (PSU) are contracts with a maturity date. You in effect loan money to a company and they promise to repay it with interest on a specific date (called the maturity date). The interest rate on a PSU will be determined by the creditworthiness of the company who issues it. These investments are taxed at 20% if you sell it after owning it for more than 3 years. Non-Convertible Debentures (NCD) – This debt is secured by the company’s assets. The interest rate will, therefore, be a bit lower as secured debt has less risk involved. But, the interest rate on NCDs will still be very competitive when compared to returns on investments like equities. Perpetual Bonds – These bonds don’t have a maturity date so there is no date by which it pays out. The issuing company, however, promises to pay the holder a set amount of returns per year. The holders of perpetual bonds trade it on the open market. Market conditions and your willingness to sell will determine if you make a profit with the selling of this investment.
6. Government SecuritiesThe government also provides investment opportunities.
Treasury bills or T-bills typically have maturity dates ranging between 3 and 12 months. T-bills are bought at RBI auctions. It does not earn the investor any interest but it’s promised to be redeemed at a discount. This means you will make a specific profit when the T-bill is redeemed.
For longer-term investment strategies, NRI’s can look at the following types of dated government securities:
Fixed rate government bonds – The interest rate on this bond is fixed.
Floating rate government bonds – The interest rate on this bond will change according to the market-related changes.
Capital index bonds (CPI bonds) – These bonds have a coupon payment rate that is adjusted according to the inflation rates of the Indian market.
7. Certificate of DepositsCertificate of Deposits (CDs) is usually used as a short termed investment. It almost works like a fixed deposit, but the holder of a CD may sell it. You need a dematerialized account to buy and sell CDs. A CD has a maturity date by which it promises to repay a certain amount. Please note, amounts invested into CDs are typically very hard to return to dollars.
8. National Pension Scheme (NPS)This pension scheme allows Indian citizens to save for retirement. You need to be between the ages of 18 and 60 to become a member of the NPS. There are two accounts each with its own rules and regulations.
Tier 1 Account – All payments and funds in this account are locked until retirement. If you retire before the age of 60 you may take 20% of the investment as cash. You are obliged to invest the rest into an annuity (an investment that pays you a fixed yearly amount). Retiring after 60 will allow you to take 40% as cash and the rest must be invested into an annuity.
Tier 2 Account – Only tier 1 account holders are allowed to open tier 2 accounts. Tier 2 accounts are unrestricted so you can deposit and withdraw money as you wish. You can also decide how the portfolio of your tier 2 account is structured. There are many types of investments that you can choose from to help you to create a diversified investment strategy.
An NPS is not exempt from tax. The capital gains aren’t taxed, but all payouts are taxed according to your tax slab (the tax bracket under which your Indian income is classified).
Are There Personal Loans in the U.S. for NRIs to Invest in India
There are great investment NRI investment options in India and you might be wondering how you can utilize it. The good news is you can get a personal loan in the U.S. to invest in India. Taking a loan with a low interest rate and investing it into something with a higher interest rate can help to get you positive returns and build your financial wealth by finding the best investment for NRI in India.
How to Take a Personal Loan with Stilt
Stilt’s personal loans are simple to apply for. Only a soft credit check is done when you apply, so you don’t need a minimum credit score to be eligible. Foreign nationals are also eligible for personal loans with Stilt. Just make sure that you comply with the basic eligibility criteria.
Here is how it works.
ApplyYou can apply online for loans between $1,000 and $25,000. Make sure you submit all the necessary paperwork. A stronger application will help you to get a better loan offer.
Get ApprovedYou will receive feedback after 24 hours of your application. Once all the information is verified, you will receive a promissory note and your loan offer. Please sign and return the note if you decide to accept the loan.
Start RepaymentThe loan amount will reflect in your U.S. bank account within 2-3 business days. After that, you just have to set up your repayment option and start repaying your loan.
It’s that simple!