India is the world’s 5th largest economy with a GDP of $3.9 trillion and will reach $5.1 trillion in 2027. (Source). By 2030, India is likely to surpass Japan and Germany to become the world’s 3rd largest economy. Evidently, the Indian economy is rapidly growing and so are the investment opportunities. While Indians are benefiting from these opportunities, NRIs (non-resident Indians) are not left behind. There’s a wide spectrum of investment options in India for NRIs. NRIs can comfortably invest in Indian markets and diversify their portfolio. Here’s everything you need to know.
How can NRIs Invest in Indian Markets?
Non-resident Indians (NRIs) can invest in Indian markets by creating a Non-Resident Ordinary (NRO) or Non-Resident External (NRE) bank account. Having either of these accounts is mandatory to be able to transact in Indian currency.
Experts at VNN Wealth will guide you through the entire procedure, including KYC, after which you can start investing in the following options.
Read in detail below👇
Smart Investment Options in India for NRIs
1. Mutual Funds
Mutual funds offer instant diversification to your investment portfolio. NRIs can invest in mutual funds via SIP or lumpsum, based on their financial goals and risk appetite. You can choose from equity mutual funds, debt funds, or hybrid mutual funds to balance risk-reward.
Equity funds are ideal for long-term investments. Debt funds offer a range of categories from short to long-term investments. Hybrid funds offer the best of both worlds. The rate of return on mutual funds depends upon the fund type and market movement.
Get in touch with experts at VNN Wealth for further guidance.
Note: Some Asset Management Companies (AMCs) may restrict NRIs from USA and Canada.
2. Alternative Investment Funds (AIF)
Alternative Investment Funds offer non-conventional investment options. NRIs can expand their portfolio beyond mutual funds by investing in AIF. AIFs have three categories: CAT I, CAT II, and CAT III. Each category provides diverse investment avenues such as private equity, venture capital, hedge funds, angel funds, etc. AIF CAT III is more popular among investors. You can contact VNN Wealth and our experts will walk you through the procedure.
3. Unlisted Shares (Pre-IPO Stocks)
Unlisted shares are gaining popularity among investors. NRIs can also buy shares of a company that hasn’t been listed yet. Unlisted stocks are traded off the market (Over-the-counter market). Therefore, it can be tricky to identify promising stocks.
VNN Wealth has handpicked unlisted shares with a good track record. These stocks are less volatile compared to the listed stocks as they’re not frequently traded.
Investing in unlisted shares unlocks the following benefits:
1. Guaranteed allocation if the company goes live on the stock exchange via IPO.
2. Pre-listing gains right before the company goes live.
NRIs can consider parking some of their funds in these shares to further diversify their portfolio.
4. Fixed Deposits
The good old FD is always worth looking into. While the return may not be as superior as the avenues listed above, it’s safe and can accumulate wealth over a period of time. NRIs prioritizing safer investments along with steady interest income can consider fixed deposits.
Here are three ways NRIs can create an FD:
1. Non-Resident Ordinary (NRO) Fixed Deposit allows you to invest your Indian income such as rental income, dividends, pension, etc.
2. Non-Resident External (NRE) Fixed Deposit converts your foreign currency into Indian currency to invest.
3. Foreign Currency Non-Resident (Banks) Fixed Deposit is a term deposit account. You can maintain and invest funds by transferring from your NRE account.
5. Portfolio Management Service (PMS)
Portfolio Management Service (PMS) provides tailor-made investments for HNIs. NRIs seeking personalized investments can also opt for PMS. A dedicated portfolio manager makes decisions on your behalf to optimize your investments & maximize returns. The minimum investment requirement for PMS is INR. 50,00,000. You will have to transfer the entire amount to the PMS house. Or, you can transfer your existing portfolio to the PMS house. If your portfolio is worth less than INR. 50 lakhs, you can invest the remaining funds by transferring the amount.
PMS helps you keep track of your stock, ESOP, and other asset holdings. The portfolio manager leverages market opportunities to deliver superior returns on your investments. You can directly communicate with the portfolio manager to gain insights. Read more about when is the right time to opt for PMS.
Taxation for NRIs
Taxation is an important factor to consider while investing. Tax rules for NRIs are similar to the Indian residents with slight exceptions.
The tax implications will depend upon the investment avenue and the investment horizon. The most important thing is to avoid double taxation. Make sure your country of residence has a Double Taxation Avoidance Treaty (DTAA) with India. You must also file The Foreign Account Tax Compliance Act (FATCA) self-declaration.
Also read- Mutual fund taxation for NRIs in India.
How Can NRIs Benefit From Investing in India?
1. NRIs with funds lying idle in India can invest without moving funds out of India. This will generate steady income for themselves or dependant parents in India.
2. NRIs returning with foreign assets can explore investment opportunities in Indian markets to amplify wealth.
3. NRIs planning to return to India after retirement can build a solid retirement plan by investing funds in various assets
Final Thoughts
India is likely to overtake Japan and Germany to become the 3rd-largest economy in the world. Sectors like Auto, Cement, Telecom, Financials, etc will significantly contribute to the growth. NRIs can explore plenty of investment options in India across various sectors and expand their portfolio.
A wide range of investment instruments, such as mutual funds, AIFs, unlisted shares, and FDs, are easily accessible. Savvy Non-resident Indian investors can also opt for Unlisted Shares/Pre-IPO to help generate that extra alpha on their portfolio. Make sure you evaluate your risk appetite and align your investments with your financial goals.
For more insights and guidance, contact VNN Wealth, and our experts will streamline your investments.
