Here is the transcript if you would like to read instead:

Jaya: Welcome back to Kairos, a podcast on financial planning where we talk about doing the right thing at the right time. I have Susithra with me today to talk about NRI investing in India. Hi Susithra

Susithra: Hi Jaya, and hello to everyone who is listening in today.

Jaya: Before we begin, I have this week’s poll results with me. For those who are new to our podcast, we run polls on LinkedIn in the first week of every month, and we discuss them here in detail. So, this week, we asked our NRI community to take part in the polls. Here are the results:

          • Poll 1: Which asset class do NRIs invest more in India? The top choice was Real Estate. Equity instruments were a close second.
          • Poll 2: What factors do NRIs consider while investing in India? A higher rate of return seems to be the focus, next being tax benefits
          • Poll 3: Is it easy for an NRI to invest in Indian equity markets? – Most think it is difficult or they aren’t sure of how it works.

This is interesting. What do you think of these results, Susithra? Can you throw some light on investment options available for NRIs?

Susithra: It’s evident from our poll results that the real estate segment sees a huge inflow from the NRI category. NRIs assign sentimental value to real estate. Buying land or property in India gives them the feeling that they still have their roots in India and shows their interest to come back and settle here. In addition to this sentimental value, many NRIs consider real estate investments to be safer when compared to equity markets.

The Next asset on the list that enjoys the status of being a “safe haven investment” is Gold. Similar to real estate, gold also has sentimental value. Gold acts as a hedge against inflation, and has a low correlation with equity markets. But, keep in mind that these benefits are only applicable to digital gold. Physical gold is difficult to store and maintain, and it is not as liquid as digital gold.

Jaya: What about the more traditional forms of savings and investments?

Susithra: NRIs are seen to be attracted to traditional investments like FDs and Bank Deposits as well. NRIs can choose either an NRE or an NRO account to deposit their money in their bank. The nature of the money deposited and the tax treatment for these accounts vary. The bank deposit rate in India is around 5% to 5.5%. NRE Fixed deposits are also tax exempt making such bank deposits more attractive.

Equity-oriented instruments are also gaining popularity among NRIs looking for investment in India. There are a lot of products in the market that gives equity exposure such as equity mutual funds, ULIP plans of insurance companies, and structured investments such as PMS, just to name a few. Investing in Indian equity is attractive as the equity returns are higher compared to other countries. But, the equity investment process is not easy very easy for NRIs, as they need to fulfil the regulatory requirements of both SEBI & RBI. We will talk more about this later in the podcast.

Jaya: Wow, that quite a few avenues available for NRIs to invest in. Are there any investments which are restricted, or that an NRI cannot participate in?

Susithra: Yes, there are. Certain products within the previously mentioned categories have restrictions which apply to NRIs.

          1. NRIs cannot invest in Sovereign Gold Bonds or SGB. But, if an NRI has already invested in SGB before going abroad, then they can continue to hold the SGB till maturity.
          2. PPF is another investment where NRIs cannot invest. But similar to SGB, a PPF opened before getting NRI status can continue, but the account cannot be extended beyond the block of 15 years. On maturity, the amount must be deposited in an NRO account on a non-repatriable basis.
          3. Post office deposit schemes such as National Savings Certificate, Monthly income schemes, and other term deposits are off-limit to NRI investors.

Jaya: So most debt-oriented schemes have restrictions. Just adding to this, NRIs have to be aware of the repatriable status when investing their money in India. Most debt-oriented instruments offer investments on a non-repatriable basis.

Let’s talk about equity instruments. What is your take on NRIs wanting to hold Indian equities in their portfolio?

Susithra: Well, Indian equities are an attractive investment option, as the returns are higher compared to developed countries. Though equity investments are riskier compared to other investments, an NRI must consider adding equity to their portfolio for the longer term. This will help beat inflation and generate better returns on their investments. But again, there are regulatory environments to keep in mind before investing in equity.

          1. As mentioned before, NRI investment in equity is regulated by both SEBI and RBI.
          2. An NRI cannot invest in direct equity markets without having a PIS account (Portfolio Investment Scheme)
          3. Even with a PIS account, an NRI cannot participate in IPOs. PIS account is only for secondary market participation (i.e.) once the share gets listed on the stock market.
          4. Few Mutual fund houses also restrict NRI investments in certain schemes. This depends on the country in which the NRI is living in at that moment. Typically, US and Canadian NRIs have a larger number of restrictions.

Jaya: So to highlight, an NRI must be KYC verified and update their bank or broker in case there is a change in their resident status. We have discussed different investment options, restrictions and regulations related to NRI investments. What according to you are the factors that NRI must consider before making investment decisions?

Susithra: 

          1. The first thing an NRI must consider is, are these investments in alignment with their financial goals? The type of investments must be chosen only after taking stock of their goals. For example: If an NRI wants to send their children to India for education then factors like Education inflation in India, currency appreciation or depreciation, etc must be taken into account. An asset class which will help meet their goal after factoring in risk is the right way to go.
          2. You must also consider where the money is going to be used. If you are planning to repatriate the investments to your resident country after their maturity, then only those assets which allow repatriation should be included. Always check the latest guidelines on repatriation rules before investing.
          3. Last but not least, taxation plays a crucial role in investment decisions. There are few options such as NRE FDs which are tax exempt, but other assets can be liable to taxation. NRIs must also be aware of any double taxation rules. They must keep track of taxation in their resident country for investments abroad as well as taxation in India. It is advisable to know if the Indian Government has any DTAA (Double Taxation Avoidance Act) signed with their country of residence. In such cases, they can claim tax credits/exemptions.

Jaya: That’s on point. When planning investments, it is important to look at the process holistically. High returns & tax savings are not enough. It is important to plan for personal and financial goals & align investments to meet those goals. Working with a financial planner could help make sure that all bases are covered.

Thanks for sharing your insights on NRI investments in India. To sum up what we discussed so far

          1. India offers attractive investment opportunities for NRIs to consider – but the focus should be on meeting one’s financial goals, liquidity, and taxes.
          2. Few investment options are restricted for NRI investments and even those which are allowed might have restrictions on repatriation.
          3. NRI must be aware of double taxation rules.
          4. The regulatory environment in India is quickly evolving, with RBI and SEBI tightening foreign investments in India. It is always in your best interest to update your resident status, KYC and other details to avoid any regulatory action in the future.
          5. It is advisable to reach out to a professional before making any investment decisions

That’s it from our end. Join in on our polls on LinkedIn or Twitter. Follow our handle @ithoughtplan for more updates. See you again next month!

Kairos is our monthly podcast series and is purely for educational purposes. Please subscribe to our podcast and hit the bell to receive a notification. You can write to us with your queries at info@ithought.co.in or visit our website www.ithought.co.in.

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