I am an NRI. What Are My Investment Options?

A Non-Resident Indian (NRI) is an Indian Citizen who lives abroad for employment or for business purposes or for a profession or stays abroad under circumstances indicating an intention for an uncertain duration of staying abroad. Indians going abroad for study, seminars, lectures, or research are not NRIs. A student can be an NRI only after finishing studies and start working abroad.

The rules and regulations regarding investment options are different for an NRI compared to Indian residents. Let us look at the investment options that you as an NRI can invest in -

1) Fixed Deposits in NRE Accounts -

NRIs can open NRE FD accounts or NRO FD accounts. In NRE FD accounts, they can get interest rates ranging from 4% to 7.25%. The interest earned is tax-free. The risk element is also low.

In NRO FD accounts, they can get interest rates ranging from 4% to 7.50%.Interest on NRO FD accounts is taxable at 30%. It might be subject to tax in the country you live in depending on certain conditions. If there is tax to be paid, a beneficial tax rate or a refund can be claimed  depending on conditions of the Double Taxation Avoidance Agreement (DTAA).

2) Fixed Deposits in FCNR Accounts -

These can have a tenure of 1 year- 5 years. The investment can be in any freely convertible currency. Interest is exempt from tax till the person is an NRI or a Resident but Not Ordinarily Resident (RNOR).

3) Equity Investments -

As an NRI, you can invest in direct equity through a demat account which is linked to  the NRE account or NRO account. The NRI would also need to have an account with a registered brokerage house for buying and selling shares. Investment in equity bears more risk. The potential to earn higher returns is more compared to FDs.

If the shares are sold after 1 year of date of purchase, the profits are considered long term capital gains. They are non-taxable. Short term capital gains meaning profits earned by selling shares within one year of date of purchase are subject to a TDS of 15%.

4) Mutual Funds -

An NRI from all countries except US and Canada can invest in equity funds, balanced funds, debt funds, liquid funds and MIPs. NRIs from U.S and Canada can invest only in a select few Mutual Fund Schemes that are available for them.

Well performing funds have the potential to give returns that can beat inflation. They are managed by professionals so there is less chance of losses and other issues.

If you do not want to risk in investing in equities but still want to get the benefits, you can use the MF route.

Profits on sale of non-equity funds within 3 years of holding will be considered as short-term capital gains. The tax will be 30%.

Profits on sale of non-equity funds after 3 years are considered as long term gains. They will be taxed at 20% after indexation.

5) Real Estate -

NRIs can invest in real estate - Residential  and Commercial. NRIs are not allowed to invest in farms, agricultural land and plantations.

There are some rules to be followed. The property can be bought only in INR. Rent can also be received in INR. An NRI has to be careful while investing in real estate as it is not easy to be away and be involved in maintenance and management matters.

6) Other Options -

NRIs can invest in Government Securities/Bonds and Certificate of Deposits. The proceeds at the end of tenure of the Bond/Government Security can be repatriable to the country where the NRI resides. Certificate of Deposits give higher yield than bank FDs.

As an NRI, you can check out the various investment alternatives and select the best ones for your investment requirements.