Nonresident Indians (NRIs) make up a majority of the vast Indian Diaspora that lives and works abroad. India has seen positive economic growth during the past few decades. This has made India a prime destination for NRIs to invest their wealth. Moreover the Reserve Bank of India (RBI) has several attractive schemes going, specifically to attract NRI investments. Here is a look at some of the favorite NRI investment options in 2020.
Fixed deposits
Fixed Deposits (FDs) are equally popular among resident and nonresident Indians. Bank FDs are one of the safest options for all investment terms. In the 2020 annual budget the Government of India has made a proposal to increase the bank deposit insurance cover from INR 100,000 to INR 500,000. This is meant to ensure safeguards for investors even if banks default (which is very rare in India). Further, the rates of interest on FDs are largely defined by the RBI, based on the term of deposit. In an effort to encourage medium term investments of 2-3 years the RBI has optimized interest rates for such deposits. NRIs can expect to earn 6%-7.5% compounded annual interest on their FDs. Senior citizens get even better interest rates. FDs are ideal for NRI’s who are risk averse and happy with medium ROIs.
Public Provident Fund
Another favorite investment option of NRIs is Public Provident Fund (PPF). Just like retirement schemes in many other countries, PPF is a government-backed scheme. As Indian citizens NRIs are allowed to have PPF accounts in Indian banks. The current rate of return on PPF investments is 8% per annum. This is again determined by the RBI. One can start a PPF account with a government bank or a private bank. One of the only challenges with a PPF investment is that it comes with a lock-in period of 15 years. Also, there is a government-imposed upper limit to PPF investment, which is INR 150,000 annually. PPF investments are exempt from income tax. This is an incentive offered by the government to encourage this long term investment option.
National Pension Scheme
The Government of India launched the National Pension Scheme (NPS)in 2004 for government employees. Owing to its popularity it was made accessible to all Indians in 2009. The NPS is a social security initiative by the Central Government. It offers an annual interest rate of 12%-14%. NPS encourages people to invest regularly. Like PPF, NPS comes with tax exemptions. Contributions to NPS are deductible up to INR 50,000 in addition to the PPF limit. The accumulated amount paid out at maturity is completely tax-exempt. Investments in NPS are as safe as PPF and FDs. NRIs aged 18-60 years can take advantage of NPS.
Real estate
Real estate in India is big business. Increasing urbanization and improvements in infrastructure have contributed to rising demand. Property prices in major Indian cities such as Delhi, Mumbai, Bengaluru, and Pune have soared over the past decade. NRIs love to send money to India to buy residential properties, and let them out on rent. This fetches the investor regular income while the real estate asset continues to appreciate. NRIs have a range of property options to choose from. However, real estate investments require careful consideration and analysis before investing. One thing is for sure; India will see a lot of activity in the real estate sector in 2020.
Mutual funds
Mutual funds (MFs) pose moderate risk. They are not as risky as investing in stocks, and not as safe as FDs. Mutual funds are can offer better returns than FDs. There are various small and large funds to invest in. Many of these are managed by government and private banks. Some MFs are highly tailored. NRIs can select MFs to perfectly match their risk appetites and financial goals. The RBI mandates that NRIs can only invest in MFs through NRO or NRE accounts. Further, they can only invest in INRs, and not in foreign currencies. The returns from MFs depend on many factors including the type of fund (debt/equity/hybrid), the fund manager’s experience, market conditions, risk profile, and so on.
Equity
Equity is considered a risky investment. However, it can be ideal for aggressive investors who are well-versed with the markets. NRIs can invest in Indian stock markets directly under the RBI’s Portfolio Investment Scheme (PINS). To do this, it is mandatory for NRIs to have an NRE/NRO account, a demat account, and a trading account. Indian stock markets have been on the rise since the 2019 general elections when PM Modi’s BJP government came to power.
About the author:
Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.
