India is considered the ‘hot’ investment option these days. The economy is well set to improve. There is optimism everywhere that better days are here. Considering all this, it may just be the right time you considered investing in India. However, remember, you may be exposed to foreign currency fluctuations. This could affect your overall returns.
Here are five investment options for you:
1. NRE, NRO fixed deposits: As a non-resident Indian, you can invest your money in a special kind of bank deposit account – a Non-Resident External (NRE) Account or a Non-Resident Ordinary (NRO) account. These can be used as a savings account, a current account or even a term deposit account. The money held will be in rupees. The difference lies in the source of the account funds. While the money in an NRE account comes from a fund transfer from abroad, the NRO account is used for crediting local income earned in India like rent or dividend income. There is another type of account called the Foreign Currency Non Resident (FCNR) account. This is used to avoid exchange rate fluctuations as the money held in the account is in Dollars, Euros, the British Pound or another foreign currency. However, the interest rates on this account is lower than NRE and NRO accounts.
The best part is that any interest you earn on an NRE or FCNR deposit is tax-free in India. However, you may be taxed in the country of your residence. Ever since the rupee depreciation in 2013, interest rates were hiked for NRI accounts to attract more fund deposits. Currently, they range between 4% and 9%. The same for FCNR accounts ranges between 1% and 5%.
2. Direct equity: Want high returns? Try equity investments. The Indian stock market has outperformed its global peers this year. Its strong bull-run is expected to continue in the near future too. This may well be the best time to invest and profit from the future growth in the markets. All you need are trading, bank and demat accounts. And there may even be special services for you as an NRI investor. Stock markets in India have returned around 15-17% on an average. It could be higher for certain high-growth stocks. You can invest for the long-term or even for the short-term in the markets. Your returns depend on your trading and investment strategy as well as the duration. However, you need to have a higher appetite for risk, as prices fluctuate in the market.
3. Equity mutual funds: If you don’t want to invest in equity directly, an equity-based mutual fund would be a good idea. It helps you reduce the amount of energy you put in for research as well as portfolio management. The asset manager will take all the required decisions for you. Equity mutual funds also provide the option of a Systematic Investment Plan or SIP. This allows you to break your total investment into monthly or quarterly instalments. So, you don’t have to worry about getting your investment timing right. Some funds have given returns as high as 70% in the last one year and over 20% annually in the last five years.
4. Offshore funds, ETFs: As an NRI investor, it may be a better idea to invest in India-based funds which are managed from outside the country. This way, you minimize the amount of exposure to Indian regulations. However, it is always better to read the fine print and compare their benefits with domestic mutual funds. They may also be exposed to risk of the Rupee’s valuation against the Dollar. You can also look at India-based Exchange Traded Funds (ETFs) listed in US markets. These are similar to mutual funds, but are listed on the stock exchange and trade just like stocks. As a result, they are much more liquid. Most of these ETFs have grown significantly in value this year, some as much as 70%.
5. Realty investments: In a developing country, the real estate sector always grows. There are two kinds of real estate investments – directly property investing or putting you money in a Real Estate Investment Trust (REIT). The benefit of the latter is that REITs are more liquid and less cumbersome. All that paperwork and registrations you have to go through while buying a property would not be applicable for a REIT. However, it depends on what your investment goal is. If you want an immovable property, which can even double up as your vacation residence, then direct investing would be a better option.
Whenever you invest, ensure you read the fine print to make sure it fits your requirements. One of the key factors to consider is the tax implications of such investments. Tax is often deducted at source compulsorily for non-resident Indians. Some investments may also have a higher threshold period for short-term and long-term capital gains classifications. Know these before taking the leap.
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