With its large numbers of young population and encouraging economy, India is known as one of the best markets in the world. Needless to say, the country offers a variety of investment opportunities for the people.
India’s favourable investment climate is also attracting NRIs who would like to park their hard earned money to earn a decent revenue over a period of time. Here are 7 lucrative investment options for NRIs in India.
A. Fixed Income Options – Less Risk, Medium Returns
The fixed income options include a variety of investments that offer a fixed return on your investments. These products generally invest in government securities and bonds. The major emphasis is on offering some income benefits while securing your principal.
As these schemes are mainly committed to principal security rather than generating revenue, you cannot have high expectations with these schemes. Though most such schemes pay better than savings accounts, they cannot be called income generating funds.
1. Fixed Deposit
You can earn a fair interest on your principal amount by starting a fixed deposit with NRE or FCNR accounts.
- You can expect around a 6% annual return on your principal that is at least better than your principal lying idle.
- Opening an NRO fixed account is not recommendable as it offers lower interest (3 to 5) and interest is subjected to be taxed at the source.
2. Certificates of Deposit (CDs)
This non-negotiable money market instrument is issued in the form of promissory notes or demat and its maturity period is between 7 days (minimum) to 1 year (maximum). These deposits offer more liquidity than time deposits.
- As an NRI you can subscribe to CDs on a repatriable basis. It generally offers better returns than fixed deposits.
3. Perpetual Bonds
These bonds are issued by companies or government institutes. Banks can also issue Perpetual Bonds under Tier-1 capital. The returns are comparatively higher than a fixed deposit but your principal amount gets locked for some time.
- The monthly interest on fixed income products can be used to invest in Mutual funds in the form of SIPs.
- Investing a small amount in fixed income options generally doesn’t yield good results.
- As a rule of thumb, don’t invest the amount in fixed income options until you think it is too big to take even a slight risk.
- In many cases, hybrid funds are a better option than fixed income schemes.
B. High Income Options – More Risk, High Return
4. Mutual Funds
If you are interested in earning high returns over a reasonable period of time then mutual funds are the best option for you.
Mutual funds allow you to enjoy the benefits of the equity market while at the same time offering better security for your principal amount than the stock market.
There are different types of mutual funds for NRIs to choose from depending upon your risk appetite and available principal. The best way to invest in Indian mutual funds is through your NRE account.
a) Large cap funds
These funds invest in high value, well-established companies that are not very volatile and thus offer better security to the investment. A good percentage of your investment can be made to large cap funds.
b) Mid and small cap companies
These funds invest in small and medium-sized companies that are relatively new, smaller in size and are easily affected by the market’s volatility. These funds are more volatile in nature and are easily affected by the market’s highs and lows.
Needless to say, they are riskier but at the same time more rewarding too. If investments are managed well, they can offer good returns over a reasonable period of time.
c) Sector funds
Sector funds invest in only specific sectors of the market like real estate, IT, pharmaceuticals and so on. Understandably as these funds are dedicated to specific sectors only they are sharply affected by the performance of these sectors and any important news/decision taken in regards to these sectors.
d) Hybrid funds
They are aimed at offering the advantage of the market while at the same time avoiding the risk. These funds are flexible and switch between equity and debt assets. In balanced funds around 65% is invested in equity while the rest goes to debt. In monthly income plans, the equity investment is not more than 25% while the rest goes o debt.
- In order to take the best advantage of different mutual funds you should diversify your portfolio:
- Invest the highest amount in Large cap funds followed by mid and small cap funds.
- Opt for SIP (Systematic Investment Plan) for enjoying the best returns over a period of time.
- At each dip in the market, you can invest a reasonable lump sum amount.
5. Stock Market
Investment in the stock market is one of the best investment options for NRI investors who are interested in accruing a good return on their investment and are ready to accept the risks involved. In fact, the market fluctuation plays a vital role here.
An NRI can invest in the stock market through the Portfolio Management Scheme of a bank. They can also invest directly in initial Public offers. However, NRIs cannot go for day trading.
This is undoubtedly the riskiest investment but at the same time offers the highest returns if managed well. So it is best to hire a dedicated manager who should be able to consult you and guide your investment according to the present market condition.
It is advisable that if you invest a very big amount like 25 lacs then you can hire well-established companies for managing your portfolio.
- Choose a few good stocks in different categories (maximum 3-4) and opt for SIP that would offer you the advantage of volatility.
- Instead of relying on daily market fluctuations, opt for buying a good fund at a certain dip (say 5-7%) and selling the same at a reasonable profit (10-15%). You can just instruct your sharebroker and he will do the rest.
- In order to enjoy the good returns on market highs while minimizing the loss without much frequent monitoring, you can opt for any of these options that are actually a bunch of several companies rather than a single entity hence the risk is reasonably divided and thus minimized.
C. Variable Income Options – Less Risk, Variable Returns
6. Real Estate
Real estate is one of the most popular investment options for NRI that offers good returns over a period of time. Though one can earn decent returns on the invested amount depending upon several factors, maintaining the property needs an active involvement and finding a buyer is not always an easy task.
Besides, the property requires a considerably high amount. This amount is locked until you are able to sell the property. One thing to note here is that you need to have the NRO account especially if you get the rent receipts.
- Rely on a legally qualified property agency to buy the property.
- It is always better to seek references from your NRI friends and colleagues.
- Hire a legal professional to guide you through all the legalities and ensure that the property you want to buy is clear of any dispute or other legal complexities.
- Prefer land to flats or houses as land is easier to sell and its value can appreciate quite decently.
7. National Pension Scheme
National Pension Scheme is an easily accessible, low cost, tax-efficient and flexible retirement savings account. Under the NPS, the individual contributes to his retirement account.
- The benefit subscribers ultimately receive depends on the amount contributed, the returns made on the contributions and the period of contributions.
An NRI between the age of 18 and 60 years, and complying with the KYC norms, can open an NPS account. However, it is mandatory to invest 40 per cent of the investment in an annuity scheme on a regular retirement.
NRIs can contribute to the NPS through fund transfers from their NRE/NRO account. Individual contributions to the NPS are subject to a ceil1ing of 10% of the gross national income. NPS is distributed through authorized entities called Points of Presence (POP). Almost all the banks in India are enrolled to act as Point of Presence under NPS.
An NPS account can only be opened by individuals, and not jointly. After the initial form is submitted, a Permanent Retirement Account Number (PRAN) is allotted.
Just like everyone else, NRIs also should put financial and physical preparation for their old age on top of their priority list. A proper mix of these investment options for NRI can help them secure and grow their hard earned money for financial goals.
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