The Indian Market
Over the last few decades, India has experienced tremendous economic growth to become the fifth largest economy in the world. This makes it an attractive destination to invest for NRIs. Debt returns also are relatively more attractive compared to most other countries. Further, NRIs are given tax concessions, especially for bank fixed deposits.
However, one needs to keep in mind that investing in India is procedurally more cumbersome. India is a high return market, yet the risks are also higher.
We out line below, the best investment options for NRI’s in 2022
Fixed Deposits (FDs) are a good option for NRIs to consider. Bank FDs are regarded as among the safest investment options because they are rarely defaulted on by banks and the tight oversight by the Reserve Bank of India. More importantly, fixed deposits are tax-free for NRIs. NRIs can open a savings account using their FCNR, NRO, or NRE FD accounts. The rate of interest is determined by the bank, the amount of the deposit, and the duration of the deposit.
Fixed deposits in the NRE account: You could want to open an NRE account in Indian Rupees. You will not be taxed on the interest you earn, but you may be taxed in your home country. Depending on the duration of the deposit, the interest rate ranges from 5% to 7%.
Fixed deposits in the NRO account: The NRO account can be used to manage your Indian revenue. Rental income or dividends from stocks and mutual funds, for example, could be deposited into the NRO account.
Deposits in the FCNR account: The FCNR (Foreign-Currency Non-Resident Account) can be opened in any foreign currency. It could last anywhere from one to five years. You will not be taxed on the interest you earn. Furthermore, the deposits in the FCNR account are unaffected by foreign exchange movements since they are denominated in foreign currency. However, the interest rates of FCNR deposits are lower than other fixed deposits.
As interest rates have started inching up, FDs are an avenue to consider in 2022. You can look at shorter-term deposits currently and move them to longer-term deposits when interest rates go up.
National Pension Scheme
Another good investment which we recommend for NRI’s is the National Pension Scheme
An NRI can open an NPS account with a POP (Point of Presence) in India if they are between the ages of 18 and 60. If you have a PAN card or an Aadhaar card, you can also open an eNPS account. You could invest in the National Pension System with your NRO or NRE bank account.
You can choose the active option, which allows you to choose your asset allocation between equity (E), corporate bonds (C), and government securities (G) (G). However, you can only invest up to 75% of your portfolio in equities. If you can’t decide on the proper investment proportions, you can use the auto pick option, which allocates assets based on life stages (age).
If you leave the NPS before reaching the age of 60, you can only take out 20% of the money you’ve saved. The remaining 80% of the corpus must be annuitized as a matter of course. If you are 60 years old or older at the time of withdrawal, you can take out 60% of your money and the remaining 40% must be utilized to purchase an annuity plan. The National Pension System will pay the pension in Indian Rupees.
One can look at investing in NPS in 2022 under the moderate risk-moderate return category and use the fund option based on your risk appetite. Keep in mind that this is a long-term option.
NRIs from countries other than the United States and Canada can invest in most Indian mutual funds. NRIs from the United States and Canada are subject to specific restrictions and can only invest in a limited number of mutual fund schemes. If your KYC is done, Mutual Funds can be one of the simplest ways to invest into India.
An NRI can invest in equity funds, balanced funds, debt funds, liquid funds, and MIPs, depending on their risk profile. Short-term capital gains are gains realized on the sale of non-equity funds within three years of purchase. It will be taxed at a rate of 30%. Gains on non-equity funds sold after three years are long-term gains. After indexation, they will be taxed at a rate of 20%. We suggest you to invest in a direct Mutual Fund plan rather than the regular plan
Mutual Funds can be purchased in a variety of ways. Regular investments can be made with SIPs, and regular withdrawals can be made with SWPs. ELSS, or equity-linked savings schemes, have become one of the most popular tax-saving strategies for everyone, including NRIs with income in India.
Since mutual funds offer a whole range of options, it is important to be able to choose the right option for you. Also, one needs to keep in mind cross border taxation while you choose between dividend and growth options.
Mutual funds with the ease of investing, its liquidity and the range of options that it offers; is an avenue to consider for NRIs in 2022.
Direct Investment in Stocks / Portfolio Management Services:
If you are an evolved NRI investor willing to accept some risk in the stock market and have awareness of individual stocks and sectors in India, you can consider investing in equities. Under the RBI’s Portfolio Investment Scheme (PINS), NRIs can participate directly in the Indian stock market. To invest in the Indian stock market, NRIs must have an NRE/NRO bank account, a Demat account, and a trading account. The banks take care of the day-to-day reporting of transactions of NRIs to RBI.
For investors without the expertise of individual stocks and sectors, one could use Portfolio Management Services (PMS) schemes. This is managed by a PMS Fund Manager and provides higher flexibility to the investors as compared to MFs.
Investors who have the time and expertise of investing in stocks can look at direct investment in stocks in 2022. PMS schemes have also done very well and are an option to consider for high-net-worth investors.
Purchasing Real Estate
India’s real estate market is expanding. Over the last few years real estate prices in major Indian cities such as Delhi, Mumbai, Bengaluru, and Pune have moved. Many non-resident Indians are buying homes in India for themselves when they return or they look to rent out the property. There are numerous possibilities available, including developed plots, villas, and flats, among others.
Before selecting to invest in Indian real estate, you should assess your needs and risk profile. Real Estate in India is expected to do well over the next ten years, after coming out of a long downturn. It may be noted that NRIs, not allowed to invest in agricultural land or plantations in India.
If one plans to come back to India, then purchasing a property for yourself is an option to consider in 2022.
Despite the market slowdown, India is still a strong investment opportunity. We expect India to perform very well through this decade. The government has taken various steps to improve the economy and its standing in the global economy. It’s a great time for an NRI to invest in the country as it looks to emerge as one of the top 3 economies in the world.
Right Horizons is one of the leading financial advisors in Bangalore, with offices in four other major cities: Mumbai, New Delhi, Chennai, and Hyderabad. We strive to cater to all of your personal finance needs under one roof. We help define, plan and track your financial goals. We also keep in mind taxation aspects while we support you on your investments.
Our contrarian investment strategy, combined with a singular focus on long-term investments, ensures that our clients receive tax-efficient and superior risk-adjusted returns. Join the Right Horizons family and experience financial freedom for the rest of your life.