Regardless of the country where an Indian earns, making investments back home is always on his/her mind. This thought has resulted in a large number of NRIs making their investments in India.
Being the world’s fastest growing economy in the world, India has attracted abundant investments from abroad due to its promising future and growth prospects. Under this backdrop, parking your surplus funds by making investments in the country will result in good long-term returns.
However, an NRI can invest in India only after completing due formalities that are prescribed by the government to regulate fraudulent and money laundering activities.
Here are a few things you should keep in mind as an NRI willing to invest in India:
- Choosing from the investment options available: NRIs can invest in most schemes such as mutual funds, fixed deposits, bonds, real estate, certificate of deposits, equities, and ETFs.
- Opening an NRE or NRO bank account: Before proceeding with any kind of investment in India, it is mandatory for an NRI to have a bank account in India through which the transactions would take place. NRIs can avail dedicated bank account services through NRE and NRO bank accounts.
Non-Resident Ordinary (NRO) accounts are those that allow repatriation of both principal and interest amounts up to $1mn in a financial year.
- Opening an FCNR bank account: Apart from NRE and NRO accounts, an NRI can also open a Foreign Currency Non-Resident (FCNR) account with any bank if he/she is looking to avoid fluctuations in exchange rates of the foreign currency that they earn in. FCNR accounts offer tax-free interest and full-repatirability.
- Taxation: The income earned from sources in India would be taxed as applicable for NRIs.
- Obtaining a PAN card: To make investments, having a Permanent Account Number (PAN) card apart from an NRE or NRO account for NRIs is mandatory.
- Opening demat and trading accounts to invest in equity markets: If one is looking forward to investing in equity markets directly or indirectly, one needs to open demat and trading accounts similar to those of resident Indians.
- Obtaining a PIS letter: To open demat and trading accounts with registered brokers, an NRI needs to obtain a Portfolio Investment Scheme (PIS) letter by the Reserve Bank of India (RBI). The PIS scheme allows and regulates foreign investments in the Indian equity markets.
- Assign a POA: To manage documentation and other bank formalities, an NRI would need to assign Power of Attorney (POA) to a local resident. This requires filing, which can be duly signed by thr NRI and the person whom he/she would be giving authority to sign on behalf of him/her.
- Trading in derivatives: An NRI may invest in exchange-traded derivative contracts approved by SEBI from time to time out of INR funds held in India on a non-repatriable basis (NRO) only.
- The 5% limit: The total holding by any individual NRI should not exceed 5% of the total paid-up equity capital on a fully diluted basis, and the total holdings of all NRIs should not exceed 10% of the total paid-up equity capital on a fully diluted basis.
- Red Flag and Breach List: NRIs should avoid direct equity investments in companies falling in the RED Flag and Breach List of SEBI. For information on companies falling in this list, one can refer to the links below:
- CDSL :https://www.cdslindia.com/publications/Foreign-Investment-Monitoring.html
- Investing in the Agriculture sector: NRIs cannot invest in companies engaged in agricultural/plantation activities or real estate activities/construction of farm houses.