When considering NRI investment in India, understanding the available options is crucial for making informed
decisions. India offers a wealth of opportunities, from traditional assets like real estate and gold to modern
financial instruments like equities and mutual funds. By diversifying across different asset classes, NRIs can
effectively manage risks and optimise returns, making their investment journey in India both secure and profitable.
Reasons for NRIs to invest in India
1. Strong economic growth: India’s economy has shown resilience and strong growth potential, offering investors potential to grow wealth at higher returns.
2. Currency advantage: With the potential for the Indian rupee to appreciate over time, NRIs can
benefit from favourable exchange rates, amplifying the value of their investments when converted back to their
resident country’s currency.
3. Diversification: Investing in India provides NRIs with an opportunity to diversify their investment portfolio not only geographically but also across different asset classes, reducing overall risk and potentially increasing returns.
4. Regulatory support: The Indian government has implemented several policies and regulations that
facilitate and protect NRI investments, making it easier and safer for NRIs to invest in the country.
Investment options for NRIs across asset classes
Equity instruments
Equity instruments offer NRIs high potential returns, leveraging India's growing economy and vibrant stock market. By
investing in equities, NRIs can benefit from the performance of leading Indian companies across various sectors,
such as technology and finance. However, it's essential to balance these investments with less volatile assets. NRIs face a 20% tax on short-term capital gains for listed instruments and applicable slab rates for unlisted instruments if held for less than 1 year and a 12.5% tax on long-term gains for both listed as well as unlisted instruments exceeding ₹1.25 lakh, with TDS applied at the source. These rates shall be further enhanced by applicable surcharge and cess.
Fixed-income and debt instruments
Fixed-income and debt instruments are investment options that provide regular, predictable returns, making them ideal
for NRIs seeking stability and capital preservation. These investments typically involve lending money to a
government or corporation in exchange for periodic interest payments and the return of the principal amount upon
maturity. Unlike equities, which can be volatile, fixed-income investments are generally lower risk, offering a
steady income stream.
- Fixed Deposits: NRIs can open Fixed Deposits
through NRE, NRO, or FCNR
accounts. These deposits offer guaranteed returns with attractive interest rates, and NRE FDs are
tax-free in India. FDs are ideal for those seeking low-risk, assured returns over a fixed tenure.
- Government securities: G-Secs, including treasury bills and bonds, are risk-free investments
backed by the Government of India. NRIs can invest through the Reserve Bank of India (RBI) under the Portfolio
Investment Scheme (PIS). Interest earned is subject to tax at applicable rates (with a TDS deduction), but NRIs from countries with Double Taxation Avoidance Agreements (DTAA) may benefit from reduced tax rates on submission of mandatory treaty documents.
- PSU and infrastructure bonds: Issued by government-backed institutions, these bonds are
low-risk and provide fixed interest payments. Infrastructure bonds, specifically, offer tax deductions under Section 80CCF, up to ₹20,000 per financial year. NRIs can invest in these bonds under the PIS, with interest income taxable at applicable slab rates (TDS applicable). These bonds typically have a tenure of 5-10 years.
- Corporate bonds and NCDs: Corporate bonds and NCDs offer higher interest rates than G-Secs due
to the added risk. NRIs can invest in these through the PIS route, but it's crucial to consider the credit
ratings of these instruments. Interest earned is taxable at applicable slab rates, and the investment tenure typically ranges from 3 to 10 years.
Mutual funds
Mutual funds provide NRIs with a diversified investment
option managed by professionals, making them ideal for long-term wealth creation. NRIs can choose between equity,
debt, or hybrid funds based on their risk appetite, enabling a balanced investment approach. Equity-oriented mutual funds incur a 20% tax on short-term gains for listed units and applicable slab rates for unlisted units, while long-term gains over ₹1.25 lakh are taxed at 12.5% for both listed and unlisted units Debt funds have different tax implications, those shall be taxed at the applicable slab rate irrespective of period of holding. These rates shall be further enhanced by applicable surcharge and cess.
National Pension Scheme
NRIs can invest in NPS, a government-sponsored retirement savings plan, to build a retirement corpus. Contributions
are eligible for tax deductions under Sections 80C and 80CCD, with an additional ₹50,000 deduction under 80CCD(1B).
At retirement, up to 60% of the corpus can be withdrawn tax-free, while the remaining 40% must be used to purchase an
annuity, which is taxable.
Real estate
Real estate is a popular investment for NRIs due to its potential for capital appreciation and the emotional value of
owning property in India. Investing in real estate, especially in metro areas, offers substantial returns through
both capital growth and rental income. Rental income is taxed at applicable slab rates. Long-term capital gains (on property held over two years) are taxed at 12.5%without indexation or 20% with indexation benefit for properties acquired before 23rd July,2024, Post this date, all properties acquired and sold, long term capital gains shall be taxed at 12.5% without indexation benefit. while short-term gains are taxed according to the NRI’s tax slab.
Gold investments
Gold offers NRIs a safe investment, providing a hedge against inflation and currency fluctuations. NRIs can invest in
physical gold, Gold ETFs, or Sovereign Gold Bonds (SGBs), with SGBs being particularly attractive due to tax
exemptions on redemption. For short term capital gains, physical gold shall be taxed at applicable slab rates and Gold ETFs shall be taxed at 20% and for long term capital gains, both physical gold and gold ETFs shall be taxed at 12.5%. These rates shall be further enhanced by applicable surcharge and cess.
Also Read: Can NRIs invest
in mutual funds in India?
Conclusion
When it comes to diversifying your investments as an NRI, options like equities, mutual funds, real estate, and gold
offer a balanced approach to growth and stability.
Axis Bank offers a range of investment options tailored for NRIs, including mutual
funds, gold investments, and equity instruments. These can be valuable additions to your investment strategy,
helping you achieve your financial goals while benefiting from India’s robust economic growth.
Disclaimer:This article is for information purpose only. The views expressed in this article
are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd.
and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader
for taking any financial decisions based on the contents and information. Please consult your financial advisor
before making any financial decision.
Mutual Fund investments are subject to market risk, read all scheme
related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019).
Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other
facility from the Bank. T&C apply.
