If you’re reading this, chances are you’re planning your move back to the homeland after a stint abroad, and you’re looking to make the most of your hard-earned savings. Well, you’ve come to the right place.
I’ve been there, and I’m here to guide you through the intricate maze of investment options in India, specifically tailored for returning NRIs like us.
Before we begin, a word of caution: investment is a personal journey and what works for one might not work for another. It’s essential to understand your financial goals, risk appetite, and investment horizon before diving in.
Alright, fasten your seatbelts, and let’s get started.
In this article...
1. Direct Equity
The Indian stock market offers a vibrant platform for those who have the appetite for higher risks and correspondingly high returns.
With a vast array of companies to choose from across various sectors, investing directly in stocks can be quite rewarding, provided you have a deep understanding of the market and keep abreast with market trends.
Remember, the stock market can be volatile and isn’t for the faint-hearted. However, with risk comes reward and equity investment has been known to offer substantial returns over the long run.
If you’re new to this, you might want to consider getting professional help or start with a virtual trading account to learn the ropes.
2. Mutual Funds
If you’d rather leave the stock-picking to experts, mutual funds are your go-to option. These are funds that pool money from various investors to invest in a diversified portfolio of stocks, bonds, and other securities.
There are various types of mutual funds, including equity funds, debt funds, hybrid funds, and index funds, each with its own risk and return profile.
For long-term wealth creation, equity mutual funds can be a good choice. If you’re looking for regular income, debt funds might be more suitable. For those who prefer a balance between risk and return, hybrid funds can be a good compromise.
The beauty of mutual funds lies in their flexibility. You can start with as little as INR 500 and reap the benefits of professional management and diversification.
Moreover, with the systematic investment plan (SIP) option, you can invest a fixed amount regularly, making it a disciplined approach to wealth creation.
3. Real Estate
Real estate is an all-time favorite for Indians and NRIs alike, and for good reason. Investing in real estate can serve dual purposes – it can serve as a roof over your head and appreciate in value over time. Moreover, rental income from property can provide a steady cash flow.
However, real estate investing requires a substantial capital outlay, and the market can be illiquid and unpredictable. Additionally, as an NRI returning to India, you might have to grapple with various legal and regulatory aspects.
Therefore, it’s essential to do thorough research or get professional help before venturing into this avenue.
4. Fixed Deposits and Recurring Deposits
For those seeking safety and certainty, nothing beats the good old bank fixed deposits (FDs) and recurring deposits (RDs).
These are term deposits that offer a fixed interest rate. While they may not offer high returns as equities or real estate, they provide a guarantee of principal and interest, making them a safe harbor, especially for risk-averse investors.
As an NRI returning to India, you might have to convert your NRE/NRO/FCNR deposits into resident deposits. The interest on these deposits is fully taxable, so that’s something to keep in mind.
5. National Pension System (NPS)
If retirement is on your horizon, the National Pension System can be an attractive option. NPS is a government-backed pension scheme that invests in a mix of equities, corporate bonds, and government securities.
The allocation depends on your chosen investment strategy and risk appetite.
One of the key advantages of NPS is its tax efficiency. Contributions up to INR 1.5 lakh are deductible under Section 80C of the Income Tax Act. An additional INR 50,000 is deductible under Section 80CCD(1B), making it one of the most tax-efficient investment options.
No discussion on Indian investments can be complete without mentioning gold. Gold holds a special place in Indian households for both emotional and financial reasons.
While physical gold in the form of jewelry or gold coins has its charm, it’s not the most efficient investment option due to high costs and purity concerns.
For investment purposes, consider options like Gold ETFs, gold mutual funds, and the government’s Sovereign Gold Bonds (SGBs). These offer the benefits of investing in gold without the hassles of storage and purity concerns.
Moreover, SGBs offer an additional 2.5% interest per annum, making them an attractive option.
So, there you have it – a whirlwind tour of the investment landscape in India for returning NRIs. Remember, there’s no one-size-fits-all approach to investing. Your ideal investment portfolio could be a mix of these options, depending on your personal goals, risk tolerance, and investment horizon.
7. Bonds and Debentures
Apart from equities and mutual funds, corporate bonds and debentures present another avenue for investment. These are essentially loans that you give to a company in return for regular interest payments.
Government bonds are also available, offering a safe investment channel with a guaranteed return. These are particularly suitable for risk-averse investors looking for regular income.
However, be cautious when investing in corporate bonds. Look at the credit rating – the higher the rating, the safer the bond. But remember, higher risk means higher returns.
8. Public Provident Fund (PPF)
The Public Provident Fund (PPF) is a long-term investment scheme backed by the government of India, offering attractive interest rates and returns that are fully exempt from tax.
The duration of a PPF account is 15 years, and the interest is compounded annually. With a low-risk profile and tax benefits under section 80C, this is an ideal investment option for risk-averse investors seeking good returns.
9. Employee Provident Fund (EPF) and Voluntary Provident Fund (VPF)
If you’re going to be salaried in India, your employer will contribute 12% of your basic salary towards the EPF, and an equal contribution will be deducted from your salary. These funds will fetch you a decent interest rate.
You can also voluntarily contribute more than the mandatory 12% of your basic salary.
This is known as VPF. The interest rate for VPF is the same as EPF. The total investment in EPF and VPF is tax-deductible up to INR 1.5 lakh under section 80C.
10. Health Insurance
Not exactly an ‘investment’ in the traditional sense, but health insurance is a critical part of your financial planning process. With healthcare costs spiraling upwards, having a robust health insurance plan for you and your family can save you from a financial crisis in case of a medical emergency.
In conclusion, navigating the plethora of investment options as a returning NRI can be overwhelming.
But fear not, my fellow returnees. With the right approach, appropriate guidance, and a well-thought-out plan, you can create an investment portfolio that caters to your financial goals and risk tolerance.
You have already taken the first step by educating yourself. The key now is to take action.
Remember, as Benjamin Franklin once said, “An investment in knowledge pays the best interest.” Keep learning, keep growing, and let your money work for you. Welcome back to India and here’s to your financial prosperity!
Q1: Can NRIs invest in all the options mentioned above?
Yes, returning NRIs can invest in all these options, just like any other resident Indian. However, they might need to update their KYC details and change their NRI accounts to resident accounts.
Q2: Are the investments made by NRIs when they were abroad taxable in India?
Only the income earned in India is taxable for NRIs. Income earned abroad and brought to India is not taxable. However, once you return to India and become a resident again, your global income becomes taxable in India.
Q3: What happens to the investments made by NRIs in India when they return?
Most investments made by NRIs continue as such even after they return to India. However, PPF and NSC get converted to post office savings accounts if the NRI returns to India before maturity.
Q4: Can returning NRIs continue to hold their NRE/FCNR accounts?
NRE/FCNR accounts must be converted to resident accounts or RFC accounts when the NRI returns to India for good.
Q5: What are the tax implications for returning NRIs?
Tax implications for returning NRIs depend on their residential status for income tax purposes. Once you become a resident, your global income becomes taxable in India. However, certain incomes are exempt under the DTAA (Double Taxation Avoidance Agreement).
Remember, it’s always a good idea to consult a financial advisor or tax consultant to understand the nuances of investing and taxes for returning NRIs.