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How to Invest Your Money

For overseas Indians, India offers a tremendous opportunity for investment and wealth building as India is slated to grow at the rate of 8% - 10% for the next few decades.

Options available for NRIs

As per the Government of India, NRIs are given the following facilities as far as investment is concerned.

Bank accounts in India
Investment in securities and debts
Investment in immovable properties such as real estate

NRE Account : This is rupee denominated account. The interest earned is tax free. The amount in the account is repatriable.

NRNR Account : This is a term deposit account with 6 months to 3 years term which can be extended. Only the interest can be repatriated. The interest is not taxable.

NRO Account : This is also a rupee denominated account. The interest earned is taxable. The repatriation limit is 1 million USD in a year.

FCNR Account : This is a term deposit accounts for maximum of 3 years in foreign currency denominated form. The foreign currencies allowed are US, Australian, Canadian Dollar, Euro, Pound, and Japanese Yen.

Investment in Securities and Debt

Indian market has been a darling for foreign investors for quite a few years. The market will keep its momentum as India is expected to grow with a respectable rate for a few decades. NRIs can invest in securities and debt instruments to exploit the opportunities presented by Indian stock market.

NRIs can invest in stocks and debt funds directly or in mutual fund. Government of India has allowed NRIs to invest in Indian market directly or through portfolio investment scheme. It has allowed the following types of investment. Investment in stocks (especially secondary market) through Portfolio Investment Scheme (PIS). This allows NRIs to invest in Indian security market without obtaining any permission from the RBI or the Government. In some cases, however, they need permission from FIPB (Foreign Investment Promotion Board) in case of investment in agriculture or planation activities. Investing in securities is done through portfolio investment scheme.

As per this scheme, NRIs can select one branch designated by RBI for transaction related to investment. The transaction then can happen through the specified branch for stocks and convertible debentures. This can be repatriable or non-repatriable depending upon the situation.

Investment with Repatriation Clause

Investment in domestic mutual fund, bonds, term deposit with companies for at least 3 years, and Government securities are allowed with repatriation benefits.

Investment without Repatriation Benefit

Investment in the form of capital contribution in any proprietary or partnership firm is allowed but it is not repatriable. NRIs can also invest in new issues through this route.

Other Investment:

Other investment such as money market mutual funds, deposit, non-convertible debentures, and commercial paper are allowed but without any repatriation benefit.

Investment in Immovable Assets

NRIs can invest in real estate. They do not need any permission to invest in real estate except in cases where they want to acquire farm land, plantation, and agriculture land. The repatriation clause needs to be looked at in individual cases. The Government allows up to 100% investment in real estate development (including housing societies and commercial space) as well as financing of housing and commercial development. There are facilities available returning NRIs so that their investment in foreign countries are not disturbed. They can also open resident foreign currency account to freely move money between NRE / FCNR accounts.

Important Points

NRIs can invest in stocks by directly buying stocks of specific company or through mutual fund. Indian market offers variety of mutual funds such as sectoral fund that invests in a specific sector, mid-cap fund that invests in mid cap firms, growth fund that invests in emerging companies, value fund that invests in stable and old companies that give consistent results.

There are India specific funds available for investment. It is important to ascertain the credentials of advisor for any investment requirement. NRIs are considered easy source of money and there is no dearth of quakes to exploit the situation.You should apply for a PAN card and then open demat and trading account linked to your NRE / NRO account which can be used for trading purposes. If you are concerned about repatriation clauses, make sure you understand the types of accounts and policies where repatriation is allowed. Open the appropriate account and invest in right instruments to avail repatriation benefits. In most if the cases, repatriation is allowed after a lock in period of 3 years.

Property Acquisition

Acquisition of immovable property in India by persons resident outside India (foreign national) is regulated in terms of section 6 (3) (i) of the Foreign Exchange Management Act (FEMA), 1999 as well as by the regulations contained in the Notification No. FEMA 21/2000-RB dated May 3, 2000, as amended from time to time. Section 2 (v) and Section 2 (w) of FEMA, 1999 defines `person resident in India' and a `person resident outside India', respectively. Person resident outside India is categorized as Non-Resident Indian (NRI) or a foreign national of Indian Origin (PIO) or a foreign national of non-Indian origin.

The Reserve Bank does not determine the residential status. Under FEMA, residential status is determined by operation of law. The onus is on an individual to prove his / her residential status, if questioned by any authority. A person resident in India who is not a citizen of India is also covered by the relevant Notifications.

In terms of the provisions of Section 6(5) of FEMA 1999, a person resident outside India can hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was a resident in India or inherited from a person who was a resident in India.

The regulations under Notification No. FEMA 21/2000-RB dated May 3, 2000, as amended from time to time, permit a NRI or a PIO to acquire immovable property in India, other than agricultural land or, plantation property or farm house. Further, foreign companies who have been permitted to open a Branch or Project Office in India are also allowed to acquire any immovable property in India, which is necessary for or incidental to carrying on such activity. Such dispensation is however not available to entities which are permitted to open liaison offices in India.

The restrictions on acquiring immovable property in India by a person resident outside India would not apply where the immovable property is proposed to be acquired by way of a lease for a period not exceeding 5 years or where a person is deemed to be resident in India. In order to be deemed to be a person resident in India, from FEMA angle, the person would need to comply with the provisions of Section 2(v) of FEMA 1999. The Press Release dated February 1, 2009 issued by Government of India in this regard is enclosed as Annex.

NRIs / PIOs are allowed to repatriate an amount up to USD one million, per financial year (April-March), out of the balances held in the Non-Resident (Ordinary) Rupee (NRO) account, subject to compliance with applicable tax requirements. This amount includes sale proceeds of assets acquired by way of inheritance or settlement.