Investment Options in India for NRIs

Why Invest in India?

Strong Economic Growth
India’s economy has shown resilience and strong growth potential. The GDP grew at a CAGR of around 7% in the last decade, with inflation at 4%. In a growing economy like India, achieving 12-14% returns on invested capital is reasonable.

Currency Advantage
Over the last 10 years, the INR has depreciated by 3-4% against the USD. Given India’s future growth potential, further depreciation seems unlikely. If the INR appreciates, NRIs will benefit from enhanced returns due to favourable exchange rates.

Diversification
Investing in India allows NRIs to diversify geographically and across asset classes, reducing overall risk and increasing potential returns.

Regulatory Support
The Indian government has implemented policies to facilitate and protect NRI investments, making it safer and more accessible.

Technology Enablement
Advancements in financial technology, integration of NSE, BSE, CAMS, KARVY, and Aadhaar-based systems have made investing in India seamless, especially in mutual funds.

Favourable Demographics
India has a young population with an average age of 28. Initiatives like Make in India and Atmanirbhar Bharat further enhance long-term growth potential, resembling China’s growth pattern in the 2000s.

Investment Options

Mutual Funds
NRIs can invest in equity markets and mutual funds via NRO accounts. Technological advancements have made investing easy. Our risk profiling and asset allocation help filter from 1,500+ funds to design a suitable portfolio.

Listed Equities
NRIs can invest in Indian stocks through the Portfolio Investment Scheme (PINS) using NRO accounts and Demat accounts. However, they cannot engage in intraday or derivative trading. Taxation is similar to equity mutual funds.

Portfolio Management Services (PMS)
PMS offers professionally managed portfolios with a minimum ticket size of ₹50 lakhs, eliminating the need for direct stock research.

Venture Capital (VC) & Private Equity (PE)
VC and PE funds invest in startups and unlisted companies, managed by professional managers. Minimum ticket size is ₹1 crore.

Fixed Deposits
NRIs can open FDs through NRE, NRO, or FCNR accounts. NRE FDs are tax-free in India, making them ideal for low-risk investors.

Real Estate
NRIs can invest in residential and commercial properties. Costs vary based on location and property type.

Unit Linked Insurance Plans (ULIPs)
ULIPs combine investment and insurance. Minimum premiums vary by provider.

Risks and Returns

Mutual Funds

Returns: 15-17% CAGR over past 25 years.
Risks: Short-term market volatility.
Verdict: Best option for NRIs due to transparency, convenience, and flexibility.

Listed Equities

Returns: 17% CAGR over past 10 years.
Risks: Requires active stock selection and monitoring.
Verdict: Suitable for experienced investors with time and expertise.

PMS

Returns: 15-17% CAGR over past 25 years.
Risks: High entry barrier (₹50 lakh minimum).
Verdict: Ideal for investors with a portfolio of ₹3 crore or more.

VC & PE

Returns: 20-30% CAGR over past 10 years.
Risks: High lock-in period (7-10 years), limited liquidity.
Verdict: Suitable for investors with a portfolio of ₹10 crore or more.

Fixed Deposits

Returns: 6-8% average over past 10 years.
Risks: Limited growth potential, barely beats inflation.
Verdict: Best for senior citizens seeking predictability.

Real Estate

Returns: 13-15% CAGR, including rental yields.
Risks: Low liquidity.
Verdict: A good diversifier; ideally limited to 20-30% of a portfolio.

ULIPs

Returns: 10-12% over past 10 years.
Risks: 5-year lock-in period.
Verdict: Do not mix investment and insurance; keep them separate.

Gold

Returns: 12-14% over past 10 years.
Risks: Storage concerns.
Verdict: A good hedge against equity, debt, and real estate. Cap gold at 10% in a portfolio. Prefer ETFs over physical gold.

Taxation for NRIs

Equity & Mutual Funds

STCG taxed at 20%.
LTCG above ₹1.25 lakh taxed at 12.5%.

Fixed Deposits

NRO FD interest taxed as per income slabs.
NRE FDs are tax-free.

Real Estate & Unlisted Shares

STCG (sold within 2 years) taxed as per slabs.
LTCG taxed at 20% with indexation.

Dividend Income

Taxed at 20%.

Double Taxation Avoidance Agreement (DTAA)

NRIs from DTAA countries can avail reduced tax rates with required documentation.

Conclusion

India’s economic growth makes it an attractive investment destination for NRIs. Diversifying across asset classes based on risk appetite can help maximize returns.

We assist NRIs in navigating the Indian investment landscape by managing administrative tasks, due diligence, asset allocation, and investment decisions.

Refer to our investment process and ideologies here.

Research Credits: Subhash, Ayush & Dhanya

Disclaimer: All the above views are for educational purposes and are not given as investment advice.