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Investment trends and opportunities for NRIs


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An NRI can simply be defined as an Indian citizen who has spent less than 183 days of a financial year in the country. NRIs are very much citizens of the country as per law. However, they do not pay tax here. 


NRIs form a strong community that contributes to India's growth, despite not paying taxes directly. For instance, the World Bank estimates that NRIs remitted about $79 billion in India in 2018, which is the most among the diaspora of any country in the world. 


But do NRIs have the right to invest in India? Yes, very much.


So what are the investment options available for them in the Indian market?


Investment Opportunities for NRIs

Here's a look at some of the best investment instruments for NRIs to explore.


Fixed deposit bank accounts: Considered the most common investment method, NRIs can simply open a fixed deposit bank account. The amount gets locked for a fixed period, but the account holder gets to earn interest rates on the amount deposited. There are three types of fixed deposit bank accounts for NRIs, such as: 


1)   Non-resident External Account: Here the money deposited in the bank is in the form of the Indian rupee currency. Interest rates under such accounts depend on the deposit amount and the operation of the bank and can vary between 4.5 to 5.5% per annum. 


2)   Non-resident Ordinary Account: The NRIs generally use these accounts to control their Indian income. Dividends from investments, rent income, or pension funds can be paid into these accounts. Currently, these accounts have a limit of $1 million which can be transferred from this account. The interest rate on NRO fixed deposits is taxed at 30%. 


3)   Foreign Currency Non-resident: Foreign currencies are simply deposited into these accounts. Such accounts help in avoiding the fluctuations that are likely to occur in the financial markets. Further, the currency that you deposit in this type of account will determine the interest rate too. Dollars generally cause an interest rate of 2 to 3%. A person is free to withdraw money from the account at any time. Also, there are no taxes on returns from such accounts. 


Mutual Funds: Mutual funds can be described as large pools of money provided by investors which are managed by qualified fund managers. Mutual funds are currently being operated under the strict supervision of the Securities and Exchange Board of India (SEBI). Considered riskier than fixed deposit accounts, mutual funds also offer higher returns than the former. An NRI needs to have an NRO or FCNR account to be able to invest in mutual funds in India. These accounts help in the easy facilitation of the investment and payout process.


Mutual funds can be categorized into two - equity and debt. In equity mutual funds, more than 65% of the fund contains stock or equity. Notably, a person has to pay 15% tax if they sell off their investment within a year. In debt funds, on the other hand, less than 65% of the fund is invested in stocks. NRIs are liable to pay 30% tax if they sell it within three years of their investment. 


Real Estate: The real estate market of India is open for investment for NRIs only and not for foreign nationals. NRIs have the option of investing in residential and commercial properties. Further, they cannot invest in properties of agricultural nature. Notably, there is no restriction on the number of properties that NRIs can invest in. 


Here’s a look at the NRI investment growth in real estate over the previous five financial years.

Period Investment Amount
FY21 $13.3 billion
FY20 $12.5 billion
FY19 $11 billion
FY18 $9.7 billion
FY17 $9.4 billion

Peer-to-Peer Lending:  The idea of peer-to-peer lending is gaining traction within the NRI community who are keen on receiving higher returns on investment. Having recorded 10x growth recently, peer-to-peer lending is increasingly emerging as the core part of the portfolio for NRI investors. 


The P2P lending sector is regulated by the RBI and enables direct investing in retail loans benefitting investors with the higher interest rate advantage that developing countries like India offer.


With platforms such as IndiaP2P, you can invest in readymade, risk-managed portfolios of diverse, loan fractions that earn monthly interest. These loans are sourced primarily from women-owned businesses with prior successful track records of loan repayments.


Current Scenario:

Although real estate was the preferred option for NRIs, the slump in prices has dented returns. Falling interest rates have also led to a decline in the NRI bank deposits. Equities and mutual funds have failed to garner the expected results due to volatility in the market. All these and other factors have driven the NRI community to look for alternative investment avenues in India. 


Fortunately, with technology, regulated online investment platforms, and the move towards fractionalized assets many more alternate investment options are available to NRIs now. 


To note:

Certain mutual fund options are not available for NRIs to invest in, according to FEMA regulations. When it comes to direct equities, NRIs can buy and sell from an approved list of stocks only. On the other hand, investors have the option of investing through P2P pending as it possesses the potential to generate passive income by way of recurring monthly interest payments. Moreover, lucrative interest rates are generally pegged at 12 to 16%, and less volatility makes P2P lending an ideal investment option for NRI investors. 

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