Indian markets have attracted a lot of interest from non-resident Indian (NRI) investors in recent years. After all, it is one of the world's fastest-growing economies and figures amongst the top choices of institutional as well as individual investors.
But what are the best ways to invest in the Indian markets? Here’s a look at the five chief investment options for NRIs.
1. Equity mutual funds and stocks: leveraging India's growth story
NRIs can participate in the country’s growth by investing in Indian equities through directly buying stocks or investing in domestic mutual funds.
As an NRI, you can invest in India through the portfolio investment scheme, or PIS, that allows the purchase and sale of shares of listed Indian companies on recognised stock exchanges through non-resident external (NRE) or non-resident ordinary (NRO) savings accounts. However, you can also take the mutual fund route. You need to complete the KYC (know your customer) formalities as an NRI to start investing in mutual funds.
Besides, GIFT City (Gujarat International Finance Tec-City) offers a better way for NRIs to invest in mutual funds, particularly through Alternative Investment Funds (AIFs). These feeder funds invest in domestic mutual funds.
These funds have a higher minimum investment amount of $150,000. However, NRIs can directly invest in these funds through their currency and make withdrawals in the same currency. Moreover, NRIs investing in domestic mutual funds through the AIF GIFT City route do not have to pay any tax. They only have to pay tax as per their current resident country's tax regimes.
Also read: What investment opportunities does Gift city offer to NRIs?
The advantages
High growth potential: Equity mutual funds offer exposure to India's rapidly growing industries, with the potential for significant returns over time.
Diversification: These funds allow NRIs to diversify across various sectors, reducing the risk inherent in individual stock investments.
Tax efficiency via GIFT City: AIFs set up in GIFT City offer NRIs a tax-efficient pathway for investing in Indian mutual funds.
The disadvantages
Volatility: Stock markets, particularly in emerging economies like India, can be volatile.
High minimum ticket size in GIFT City: Many AIFs require a minimum investment of $150,000, which may be restrictive for smaller investors.
Global GIFT City Funds: Broadening your investment horizon
Global funds enable NRIs to invest beyond India's borders, diversifying into international stocks, bonds, and other asset classes. As India's economic growth continues, these global GIFT City funds provide a way to hedge against risks associated with the Indian market and benefit from other high-growth global economies.
Investing in global funds reduces concentration risk by providing exposure to various countries and markets.
For example, developed markets like the US, Europe, and Japan offer more stability and lower volatility compared to emerging markets.
Global funds are perfect for NRIs who want to balance their Indian investments with opportunities in more mature markets or other emerging markets, providing stability and a hedge against local risks.
3. Portfolio Management Services (PMS) that offer personalised wealth management
Portfolio Management Services (PMS) offer a highly personalised approach to investing. By leveraging the expertise of professional managers, NRIs can receive tailor-made investment strategies based on their risk profile, goals and financial situation.
Unlike mutual funds, PMS allows investors to customise their portfolios based on their financial goals and market outlook. These portfolio managers actively track and manage investments, making adjustments based on market trends, which is ideal for investors who want hands-on management.
However, PMS requires a significantly higher initial investment, which may not be accessible to all investors. Also, PMS firms charge higher fees than traditional mutual funds, which can impact long-term returns.
PMS is best suited for high-net-worth NRIs looking for personalised, active management of their portfolios and access to exclusive investment opportunities.
4. Real estate: Tangible assets with long-term growth potential
Real estate is a classic investment choice for NRIs, providing a sense of ownership and a potential for rental income. NRIs can invest in residential and commercial properties in India, although agricultural land and plantations are restricted. This asset class is especially popular among NRIs seeking to maintain a connection to their homeland.
Real estate can offer stable returns through rental income and potential appreciation over time. However, property in India can be illiquid, with high transaction costs and regulatory complexities. Real estate management and maintenance can also be challenging for NRIs. There are many agencies that can help NRIs deal with real estate management but it is important to select an organisation that is trustworthy.
However, for NRIs planning to retire in India, having a piece of real estate can make settling down in India much easier.
Also read: National Pension System: Not just a great retirement tool, it offers tax benefits too
5. National Pension System (NPS): A secure path to retirement
The National Pension System (NPS) is a government-backed retirement scheme, which is open to NRIs. NPS investments focus on a mix of equity and debt, making it a balanced option for retirement savings. Although designed for Indian residents, NRIs can benefit from this long-term investment tool with tax-saving advantages.
NPS provides flexibility in asset allocation between equity and debt and offers a relatively low-cost structure. Contributions to NPS are eligible for tax deductions under Sections 80C and 80CCD(1B), offering up to Rs 2 lakh in tax benefits. However, it's primarily a retirement-focused option, which may not suit NRIs seeking liquidity or shorter-term gains.
At maturity, 60 percent of the NPS corpus is tax-free, while the remaining 40 percent must be used to purchase an annuity, which is taxable as per income slab. This makes NPS a tax-efficient option for NRIs focused on building a retirement corpus in India.
The Indian investment landscape offers a range of opportunities for NRIs to grow their wealth. From high-growth equity mutual funds and stocks to global diversification through international funds and tailored portfolio strategies with PMS, there are options to suit every risk profile. Real estate and NPS remain strong, traditional avenues that provide stability and long-term wealth creation.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decisions
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