Tax Planning Series V – More Investment Options for NRIs
In the previous series, we delved on the various debt investment opportunities available to NRIs. However, the main concern with the fixed income investments is that they are hardly able to beat inflation in the long term post taxation. Hence, they are not the ideal investments to create sustainable wealth. In this article, we take a look on all those asset classes which can create wealth for them in the long term.
India is among the fastest growing economies in the world and this country provides tremendous opportunity for investment and building wealth over long term. Indian economy has exhibited a robust rate of growth over the last few years and has potential to grow at sustained pace of 6% to 8% annual growth in the future as well. Indian Equity market has been among the favourite for global investors for last many years and growing economy, the Indian equity market is expected to create wealth for investors.
Below are the various market linked investment options available to NRIs.
- Equity Oriented Mutual Funds: Equity Mutual fund is a professionally managed equity scheme where fund manager invest in basket of securities across various sectors and market capitalisation. If one is investing for very long term goals like Children education, children marriage, retirement etc, then one should ensure that his returns from investments should beat inflation. Equity as an asset class has delivered the best inflation adjusted return over long term, hence if the investment is for long term, an NRI can look at investing in Equity oriented mutual fund. One can freely invest both on repatriable as well as Non-repatriable basis without any upper limit. However most US-registered mutual fund companies which have India operations do not accept investments from Indians living in the US/Canada as they are bound by the cap on the number of non-resident investors they can take.
- ULIP Plans: ULIPS or Unit Linked Insurance Plans are those insurance plans which combine Insurance and Investments. In these plans, customer has the option to structure his exposure to the debt and equity markets depending on his/her financial goals and risk taking appetite. On maturity, investor receives the fund value plus any bonus if any and in case of unfortunate event like death before maturity, investor receives fund value or sum assured whichever is higher. The dual offering of protection and long-term wealth creation through mix of equity and debt makes unit linked products an attractive investment proposition for long term goals.
- Stocks/Shares: NRIs can invest in stocks directly. Any NRI or a PIO wanting to trade/make fresh investments in the Indian Equity Secondary Market needs and must have one PINS account with only one designated bank in India. For any company the foreign investment into that company cannot cross certain limit. This limit is different from company to company and sector to sector. Also individually, any NRI or a PIO cannot invest more than 5% in any Indian company. However, they are not permitted to trade in derivatives market (Futures / Options).
- Immovable Property: An NRI may acquire immovable property in India other than agricultural land/ plantation property or a farm house out of repatriable and / or non-repatriable funds. However NRI who are citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan would require prior approval of the Reserve Bank. The payment for purchase should be made out of either (i) funds received in India through normal banking channels by way of inward remittance from any place outside India or (ii) funds held in any non-resident account maintained in accordance with the provisions of the Act and the regulations made by the Reserve Bank. The payment of purchase cannot be made either by traveller’s cheque or by foreign currency notes.
- Gold: Gold always holds sacred meaning in Indian culture and it is bought on achieving important milestone like marriage, child birth, religious ceremonies, and festivals amongst other occasions. NRIs can invest in Gold through Gold ETF (listed on exchange), else they can also invest in Gold Fund issued by mutual fund companies or buy physical gold from banking the form of bars and coins. The return on this product is linked to performance of Gold. Gold ETFs and Gold funds provide investors with a cost-efficient and secure way to participate in the gold bullion market without the necessity of taking physical delivery of gold.
As we have discussed above, they are plenty of options available for NRI investors. Indian markets on the back of strong demographics, high consumption and growth potential provides excellent investment opportunities to all types of investors. No wonder India has received the highest inward remittances from NRIs as compared to any other country. Much of this investment finds its way to the various investment opportunities mentioned above. This is the right time for NRIs to turn their attention to India.
NRI’s can also invest in other types of life insurance products such as term insurance plans, pension plans, child plans, endowment plans etc.