Investment Options In India For NRIs

By | August 31, 2016

Investment options for NRIs

Non-Residential Indians or NRIs are the people who have settled abroad for various reasons. And thanks to a great boom in the educational sector and work opportunities across the world, Indians have migrated to almost all corners of the world.  Be it the US, UK, Canada, Australia or any other country, it is impossible not to find a small Indian community living together.

When it comes to investing money, a lot of NRIs look to make investments in Indian markets. While some NRIs may invest in India due to a sense of belonging, others invest simply to avail tax benefits. Let’s take a look at how NRIs can invest in India.

NRIs are free to put their money into all kinds of investment options that are open to residents of India too. However, individuals of Indian origin cannot invest in agricultural shares and markets. Let’s take a closer look.

Are NRIs allowed to deal in stocks and shares in India?

Yes. NRIs can invest in shares and stocks via:

  • Direct Investment: An NRI can directly put money in shares and debentures of Indian companies on a repatriable or non-repatriable basis, which means these shares may or may not be transferred to the NRI’s country of residence, respectively.
  • Portfolio Investment Scheme: An NRI can invest in the secondary market by buying shares of an Indian company from other investors through a stock broker in an authorised stock exchange.
  • Government bonds: An NRI can also invest in government securities, certificates and units of UTI through remittances from their domestic accounts or remittances from abroad

How are payments made?

An NRI can use the following accounts in order to invest:

  • NRE Account (Non-Resident External Rupee Account): This is a Savings Account that allows the NRI to securely transfer his/her earnings to the Indian market and to repatriate the income from funds.
  • NRO Account (Non-Resident Ordinary Rupee Account): The interest earned from the account is subjected to tax and repatriation is limited.
  • FCNR Account (Foreign Currency Non-Resident Account): This is a high-interest rate Fixed Deposit account where NRIs can invest using foreign currency.

What are the 24% and 40% Schemes?

The 24% Scheme allows NRIs to own up to 24% of shares of non-agriculture-based Indian companies with repatriation benefits.

Similarly, the 40% scheme allows NRIs to invest in equity, preference shares, real estate and convertible debentures not exceeding 51% of the face value of each issue. Repatriation of up to 40% of the new issue is allowed. Under this scheme, NRIs can invest in new projects or in the expansion and diversification projects of existing companies.

What are the investment options available for NRIs?

NRIs can invest in:

  • Bank Deposits
  • Secondary markets through Portfolio investment in equity shares/convertible debentures
  • New issues under the 24% and 40% schemes (shares/convertible debentures)
  • Non-convertible debentures
  • Mutual Funds – provided that the amount is invested out of an NRE/FCNR/NRO account or by inward remittance
  • Domestic (NRO) funds through deposits in Indian companies (including Non-Banking Finance Companies (NBFCs) if they are registered with the Reserve Bank of India) on a non-repatriation basis of up to three years subject to certain formalities to be completed by the concerned company
  • Government bonds – provided that the amount is invested out of an NRE/FCNR/NRO account or by inward remittance
  • Proprietary or partnership concern in India
  • Immovable property provided that the amount is not invested for the purchase of agricultural land, plantation property or farm houses and investments are made from a fresh inward remittance or an existing non-resident account

What are the different tax benefits available to NRIs?

  • Bank Deposit investment in shares, units of Mutual Funds etc. are exempt from wealth tax in India
  • Interest earned on NRE and FCNR accounts is completely tax-free. But the interest earned from an NRO account is taxable.
  • In 1997, Gift Tax was abolished. So both the donor as well as the recipient did not have to pay any tax on gifts received. However, due to rampant misuse – there was a widespread transfer of insincere gifts from non-relatives – as per Section 56 (2)(v) of the Income Tax Act passed in 2004, any amount exceeding Rs. 25,000 obtained by a person or a Hindu Undivided Family (HUF) without any consideration from a non-relative would be taxed. The only cases exempted were gifts given during marriage, inheritance left behind in a will or if the payer died.

Additional Reading: Do All NRIs Need To File Tax Before 31st July?

There you go! If you’re an NRI looking for investment options in India, these basics are all you need to know to get started. More queries? Just leave us a comment!

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