Best Investment Options for NRI in India

India has evolved to be an attractive destination for foreign investors, especially from countries like the U.S., UK, and UAE.  The Indian economy is the fifth largest in the world and is projected to grow at 7-8% CAGR by FY 2025. Despite the global pandemic in 2021, India has demonstrated impressive resilience and growth

As the government continues to create a business-friendly environment, India offers a wide range of promising investment opportunities from high-yield fixed deposits with returns to alternative options like invoice discounting. According to a recent SBNRI survey, 53% of NRIs believe India offers better investment prospects than many other foreign markets.

In this blog, we’ll explore investment avenues in India for NRI’s and how NRI investors can drive financial growth.

Why Should NRIs Invest in India? 

India offers several compelling reasons for non-resident Indians (NRIs) to invest in the country:

1. Fastest-Growing Economy: India is among the fastest-growing global economies, with significant FDI inflows and a projected GDP growth of 8.2% for 2023-24. The government’s $270 billion package under the Atmanirbhar Bharat initiative provides significant stimulus to drive economic growth and resilience.
2. Young Workforce: India has the world’s largest youth population, expected to remain so until 2030. This dynamic workforce drives innovation and technological progress.
3. Infrastructure Development: The National Infrastructure Pipeline (NIP) targets world-class infrastructure, identifying over 9,700 projects worth $3,093.51 Bn. Key sectors include energy, roads, urban development, and railways.
4. Rising Global Competitiveness: India ranks 39th on the Global Competitiveness Index 2024 and has made strides in ease of logistics and economic reforms, like GST, enhancing its position as a global business hub.
5. Innovation Leadership: India now ranks 39th on the Global Innovation Index, establishing itself as a leading innovator in the Central and Southern Asia region and is the top innovator in the Central & Southern Asia Region.
6. Rising Economic Influence: India is becoming a centre of global trade, especially in the Indian Ocean region, with increased connectivity to Europe, Central Asia, and the Gulf region.

Types of Investment Options Available for NRIs 

NRIs can access diverse investment opportunities in India, ensuring portfolio diversification and enjoying tax benefits. Double Taxation Avoidance Agreements (DTAA) for example works in the favour of NRIs, helping them avoid being taxed twice and take advantage of various exemptions and deductions.

1. Fixed Income and Debt Instruments:

Fixed Deposits for NRIs

NRIs have the opportunity to invest in various types of fixed deposit accounts that offer stable returns with minimal risk. 

• Foreign Currency Non-resident (FCNR (B)) Accounts: FCNR deposits allows NRIs to invest in foreign currency without the risk of exchange rate fluctuations. These accounts can be held in major currencies like USD, GBP, EUR, and more. The principal and interest are fully repatriable, meaning funds can be converted back into foreign currency and can be transferred to the investor’s home country. Also, the interest earned is exempt from Indian income tax.
• Non-resident External (NRE) Accounts: NRE fixed deposits can be opened by oversea citizens of India (OCI) as well as persons of Indian origin (PIO). This account is maintained in Indian rupees and allows NRIs to repatriate both principal and interest. Interest on NRE deposits is tax-free, making them ideal for tax-efficient returns.
• Non-resident Ordinary (NRO) Accounts: NRO fixed deposits are for NRIs who wish to manage income earned in India through sources such as rental income, dividends, and pensions etc. While the interest earned is subject to Indian income tax, these accounts are ideal for managing local earnings, though repatriation is restricted to a certain limit.

Government Bonds and Securities

Investing in government bonds offers NRIs a secure and stable way to generate income with minimal risk. Issued by the Indian government, these bonds offer safety with a sovereign guarantee. Key options include:

• Treasury Bills (T-bills): Short-term government securities with maturities of less than one year. They are low-risk investments, providing steady returns.
• Government Bonds: Long-term bonds with maturities ranging from 5 to 40 years. They offer fixed interest payouts, making them ideal for risk-averse investors.
• Sovereign Gold Bonds (SGBs): These bonds are linked to the price of gold and are an alternative to physical gold investment. They offer an annual interest rate, along with the price appreciation of gold.

Corporate Bonds and Non-convertible Debentures (NCDs)

Corporate bonds and NCDs are fixed-income instruments issued by private companies. They offer higher returns than government securities but come with increased risk.

• Corporate Bonds: Issued by companies to raise capital, these bonds offer regular interest payments over a fixed tenure. NRIs can invest in these to earn better yields, but the risk of default is higher than government securities.
• Non-convertible Debentures (NCDs): NCDs are debt instruments issued by companies for long-term borrowing. They offer fixed interest rates and are not convertible into company shares, providing higher returns than fixed deposits but at a higher risk level.

PSU and Infrastructure Bonds

NRIs can invest in bonds issued by public sector undertakings or infrastructure bonds, which offer stable returns and tax benefits while contributing to national infrastructure projects.

• PSU Bonds: These bonds are issued by government-owned entities under which 51% is owned by the government of India or state government, offering safety and reliable returns. Since PSUs have implicit backing from the government, the risk of default is low, making these bonds a relatively safe investment.
• Infrastructure Bonds: These are long-term bonds issued by companies or government entities to finance infrastructure projects. 

2. Equity Investments in India:

NRIs can actively participate in India’s economic growth through various equity investment options. Here are the key avenues through which NRIs can make equity investments:

Direct Equity (Stocks)

NRIs can invest directly in Indian stocks through Non-resident External (NRE) or Non-resident Ordinary (NRO) accounts by opening a Portfolio Investment Scheme (PIS) account with a registered broker. This allows NRIs to buy and sell stocks on the Indian stock exchanges like BSE and NSE.

Equity Mutual Funds

NRIs can invest in equity mutual funds, which pool money from investors to invest in a diversified portfolio of stocks. There are different categories of equity mutual funds such as large-cap, mid-cap, small-cap, sectoral, and multi-cap funds.

Exchange-traded Funds (ETFs)

ETFs are funds that track an index, commodity, or a basket of assets but trade like stocks on an exchange. NRIs can invest in Indian ETFs that focus on equities, such as Nifty 50 or Sensex ETFs, through their PIS accounts.

Initial Public Offerings (IPOs)

NRIs can apply for shares in Indian companies that are raising funds through IPOs. They can invest using their NRE or NRO accounts, provided they have a PIS account with a registered broker.

Venture Capital and Private Equity Funds

NRIs with a higher risk tolerance can invest in venture capital (VC) or private equity (PE) funds, which focus on early-stage startups or growth-stage companies. These investments are illiquid but can provide high returns.

3. Real Estate Investments in India:

Investing in real estate whether residential or commercial is one of the most popular avenues for wealth creation in India. It offers a mix of capital appreciation and rental income, making it an attractive option for NRI investors.

Residential Properties:

• Types: Apartments, villas, independent houses, and plots of land.
• Investment Purpose: Typically, these are bought for rental income, or long-term appreciation.
• Demand Factors: Key factors like location, infrastructure development, and proximity to schools, hospitals, and business hubs influence the value and demand of residential properties.

Commercial Properties:

• Types: Office spaces, retail spaces, warehouses, and industrial units.
• Investment Purpose: These are primarily bought for rental yields from businesses and for long-term capital appreciation.
• Demand Factors: The growth of sectors like IT, retail, e-commerce, and manufacturing drives demand for commercial real estate in urban and semi-urban areas.

4. Gold Investments for NRIs in India:

Here are some key ways NRIs can invest in gold:

Gold ETFs (Exchange Traded Funds)

Gold ETFs are investment products that track the price of physical gold and are traded on stock exchanges like shares. They represent ownership in gold without the investor physically holding the metal. Each gold ETF unit is backed by high-purity physical gold stored securely by fund managers. NRIs can buy and sell these ETFs on Indian stock exchanges such as NSE or BSE, making them a highly liquid and convenient option.

One of the major advantages of gold ETFs is that there are no concerns about storage or theft, as they are held electronically. Additionally, there are no making charges like in physical gold jewellery, and they have lower costs associated with them. The taxation on gold ETFs is similar to physical gold, where long-term capital gains (LTCG) tax is applicable after 36 months or more of holding.

Sovereign Gold Bonds (SGBs)

Sovereign Gold Bonds (SGBs) are government-backed securities issued by the Reserve Bank of India (RBI) on behalf of the government. These bonds are a good option for NRIs who prefer earning interest while holding gold as an investment. SGBs are denominated in grams of gold and offer an annual interest rate of 2.5%, which is paid semi-annually. Besides the interest, investors benefit from the appreciation of gold prices over time. There are no risks of storage or theft, and upon maturity, the bonds can be redeemed at the prevailing gold price. Moreover, if held until maturity, there is no capital gains tax on the appreciation in value.

NRIs can invest in SGBs through banks or post offices, and the bonds typically have a tenure of eight years with an option to exit after five years.

Physical Gold (Bullions and Coins)

For NRIs, buying physical gold in the form of bullion (gold bars) or coins is another traditional and direct method of investing. Bullion is usually sold in higher quantities (often starting from 10 grams to 1 kilogram or more), making it suitable for large investments. Gold coins, on the other hand, are available in smaller denominations, starting as low as 1 gram. These options allow direct ownership of tangible gold. However, with physical gold comes the responsibility of storage and security. NRIs must also consider making charges (if opting for jewellery) and the risk of impurities. Bullion and coins are ideal for those who prefer having gold in hand and are comfortable managing the logistics of storing it safely, whether in bank lockers or private safes. 

5. National Pension Scheme (NPS):

NPS is a suitable option for NRIs looking for a disciplined, long-term retirement plan in India. It provides market-linked returns meaning returns on your NPS investments are not fixed but are tied to the performance of the financial markets. The value of your NPS portfolio will fluctuate based on how the underlying investments perform in the market. It is especially best suited for NRIs who plan to retire in India.

6. Unit-linked Insurance Plan (ULIP):

For NRIs, ULIPs offer a flexible investment option with the added benefit of insurance protection.

A ULIP combines both investment and insurance in a single plan. It offers life insurance coverage along with the opportunity to invest in various market-linked instruments like equities and bonds, providing potential for capital growth over the long term.

7. Public Provident Fund (PPF):

The PPF is a long-term savings scheme in India that encourages savings through tax benefits and attractive interest rates. While NRIs (Non-resident Indians) cannot open new PPF accounts after changing their residency status, they can maintain existing accounts opened while they were residents. The maximum contribution limit is INR 1.5 lakh per financial year, and the interest earned is tax-free, compounded annually. Though NRIs cannot make further contributions after becoming non-residents, their accounts can still earn interest until maturity, which is typically 15 years. Partial withdrawals maximum of three times in their NPS account, and premature closure is possible under specific circumstances after 5 years.

If an NRI returns to India and resumes residency, they can again make contributions to their existing PPF account, regaining eligibility for tax deductions under Section 80C of 1.5 lakhs and additional INR 50,000 under 80CCD(1B). Overall, PPF remains a valuable long-term investment option for NRIs who hold existing accounts, providing a secure avenue for savings and wealth accumulation in India.

8. Alternative Investment Funds:

Alternative Investment Funds (AIFs) are privately pooled investment vehicles that collect funds from investors to invest in various asset classes, including equity, debt, real estate, and other assets. These funds are regulated by the Securities and Exchange Board of India (SEBI) and provide a structured way to invest in the Indian economy. 

SEBI has divided alternative investment funds into 3. 

• Category I AIF

These funds primarily focus on investing in socially and economically beneficial sectors and are incentivized by the government. They include funds that promote entrepreneurship, job creation, and growth in critical areas.

• Category II AIF

Category II AIFs typically invest in a mix of equity, debt, and other financial instruments but are restricted from using leverage (except for day-to-day operations).

• Category III AIF

These funds employ diverse and complex strategies, including derivatives, leverage, and arbitrage, to generate high returns. Category III AIFs are typically open-ended and include hedge funds and other funds using sophisticated investment techniques.

9. Alternative Fixed Income Investments:

As NRIs look to diversify their investment portfolios beyond traditional investment assets, alternative fixed income options in India’s expanding market are gaining significant traction. altGraaf’s platform offer innovative alternative investment products such as unlisted corporate bonds and invoice discounting. These options provide access to underexplored avenues with the potential for attractive returns. Let’s explore the range of products that could align with your investment goals.

Below is a brief overview of the products: 

1. altWings connects businesses seeking working capital with individual investors through the altGraaf platform. After rigorous due diligence, the platform lists companies for investors to finance invoices. These invoices offer a 90-day repayment tenure with 12-14% annual yields. Risk mitigants like post-dated cheques safeguard investor interests. altGraaf’s rigorous credit screening process ensures that only creditworthy companies are listed on the platform, offering investors transparency and confidence.

2. altBlu offers two versions: one with trade credit insurance and escrow control and another with just escrow control. The first version provides 90% insurance coverage for the principal, mitigating default risk. Investors earn an 11-12% yield over a 90-day tenure. 

3. altArmour facilitates individual investors to invest in invoice discounting with added security through trade credit insurance. This insurance covers 100% of the principal and interest, protecting investors from defaults. Funds and repayments are managed through an altGraaf-controlled escrow account, ensuring transparency and safety. Despite these risks, partnerships with reputable insurers and their risk mitigants offer a secure investment option with 11 -12 % yields over a 30-90-day tenure.

4. altSmart allows individual investors a unique investment option. Invoices are raised by companies that require working capital. Each invoice is backed by a bank guarantee with escrow control on repayments, ensuring returns even in the event of buyer default. With altSmart, investors diversify portfolios with stable returns and contribute to economic growth while enjoying a hassle-free investment experience.

Like all investments, invoice discounting investments carry risks, and investors must review all investment opportunities carefully before investing. However, with these choices of Invoice Discounting products across the risk spectrum from very low to high risk, investors can select opportunities that align with their risk appetite and return expectations.

Regulatory and Legal Considerations for NRI Investments 

When NRIs invest in India, they must navigate various regulatory and legal frameworks set by Indian authorities to ensure compliance. These frameworks are governed by several key bodies, including the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), and Indian tax authorities. Here’s an overview of the regulatory and legal considerations NRIs should make before investing in India:

1. Foreign Exchange Management Act (FEMA) Guidelines

FEMA governs the inflow and outflow of foreign currency and regulates NRI investments in India. NRIs can invest in Indian securities through various schemes but must adhere to FEMA regulations on repatriation and account types.

2. Portfolio Investment Scheme (PIS)

The PIS allows NRIs to invest in the Indian stock market. Under PIS, NRIs can buy and sell shares of Indian companies listed on recognized stock exchanges like the BSE and NSE. NRIs must maintain a PIS account with an authorised bank to track all stock market transactions.

3. SEBI Regulations

SEBI regulates securities markets and investment vehicles, including equity, mutual funds, and Alternative Investment Funds (AIFs). SEBI ensures that all market participants, including NRIs, are protected and that markets function transparently.

4. Compliance with Know Your Customer (KYC)

NRIs must complete KYC formalities before investing in India. This includes submitting identity and address proof, usually verified through an embassy or notary public, to financial institutions. KYC compliance ensures the legitimacy of investments and prevents money laundering activities.

5. Wealth Transfer and Estate Planning

NRIs should consider Indian laws on estate planning, inheritance, and wealth transfer. The Indian Succession Act governs inheritance, while FEMA rules govern the repatriation of assets to the NRI’s home country.

Taxation for NRIs:

NRI investments in India are subject to various taxes, including income tax on capital gains, dividends, and interest earned on investments.

Capital Gains Tax:

• Equity Investments: Short-term capital gains (holding period less than 1 year) are taxed at 20%, while long-term capital gains (holding period over 1 year) are taxed at 12.5%
• Debt Investments: Short-term capital gains on debt funds are taxed as per the NRI’s applicable income tax slab, while long-term capital gains (holding period >3 years) are taxed at 20% with indexation and 12.5% without indexation. 

Double Taxation Avoidance Agreement (DTAA):

• India has DTAA agreements with several countries, allowing NRIs to avoid being taxed twice on the same income. For instance, if an NRI earns income in India and is also taxed in their country of residence, they can claim a tax credit in one of the countries to avoid double taxation.

Strategies for Successful NRI Investments in India 

Investing in India as an NRI offers significant potential due to the country’s growing economy and wide range of investment opportunities. However, to navigate the complex regulatory landscape and make the most of these opportunities, NRIs need to adopt well-thought-out strategies. Below are some key strategies for successful NRI investments in India:

1. Diversify Across Asset Classes

Diversification is key to minimising risk and maximising returns. Instead of focusing solely on one type of asset, NRIs should consider a mix of equities, fixed-income products, real estate, mutual funds, and alternative investments.

2. Stay Updated on Regulatory Changes

The Indian regulatory environment for NRI investments can change frequently, particularly with respect to FEMA (Foreign Exchange Management Act) and SEBI regulations. To stay compliant and ensure smooth investments. Follow updates from RBI, SEBI, and tax authorities. 

4. Leverage Professional Financial Advice

Due to the complexities of cross-border investments, NRIs should seek professional advice for informed decisions. Financial advisor can also provide valuable insights on repatriation, portfolio diversification, and optimising tax structures.

5. Use Systematic Investment Plans (SIPs)

Systematic Investment Plans (SIPs) are highly beneficial for NRIs as they provide a convenient and disciplined way to invest regularly in mutual funds. By allowing small, fixed investments at regular intervals, SIPs help NRIs enter the market with a lower financial commitment, making it easier to start investing without needing a large sum upfront. Over time, this consistent investment, combined with the power of compounding, can help NRIs build wealth for long-term goals. Additionally, SIPs offer flexibility, allowing NRIs to adjust or stop their contributions as needed, making it a hassle-free and efficient way to grow their investments in India.

6. Real Estate: Choose Location and Type Carefully

Real estate remains a preferred investment option for NRIs, but careful consideration is required:

• High-Growth Cities: You can focus on cities like Bengaluru, Mumbai, Pune, and Hyderabad, where there is consistent demand for both residential and commercial properties.
• REITs for Diversification: If managing property is a concern, NRIs can explore REITs, which provide exposure to the real estate market without the need for direct property ownership.

7. Monitor and Review Investments Regularly

Continuous monitoring and periodic review of your investment portfolio are essential for success. NRIs should:

• Track the performance of their investments and adjust based on changing market conditions or life goals.
• Regularly rebalance their portfolios to maintain their desired asset allocation and reduce risk

Final Thoughts: Investment Options for NRI in India 

India is currently experiencing a golden period, with substantial FDI inflows highlighting the nation’s growing importance on the global economic stage. As one of the world’s fastest-growing economies, India offers a diverse range of investment opportunities for NRIs, making it an attractive destination for portfolio diversification and risk mitigation.

The World Bank has acknowledged India’s significant progress, noting that the country’s increasing integration into the global economy has fuelled robust growth, positioning India as a global player. Investments in India have the potential to offer inflation-beating returns, making it an appealing prospect for investors seeking both growth and financial security.

Before investing, NRIs should thoroughly review product details, assess risks, and ensure alignment with financial goals. Thorough analysis and professional guidance will help NRIs capitalise on India’s growth while safeguarding your investments for the future.

Grow your wealth with exclusive access to high yield alternative fixed income opportunities from altGraaf. Join us today to gain access to these new-age fixed income products and build a diversified growth portfolio that can be tailored to meet your financial goals and risk appetite.