Practical Guide on how NRI’s plan their investments in India?


There are more than 3 Crore NRI’s and PIO’s who are settled outside India and this post is mainly for those NRI’s who intent to come back to India in the next 2 to 20 years.

Most of the people who go outside India for work purposes prefer to go to English speaking developed nations like US, Canada, Europe, Australia, Singapore, New Zealand etc. These developed nations are good paymasters and also offer a good working environment and therefore are a lot of Indians prefer to work in these developed nations.

However, most of these developed nations don’t offer a good return on investment. Infact, the interest rate offered by banks in these countries is most of the times even lower than the inflation rate in India. So if your bank is offering you 2% per annum whereas the inflation rate in India is 5% p.a., your money is not growing but de-growing as the purchasing power of this money is going down if used in India.

If you intent to stay outside India foreover, this may not bother you but if you intent to return to India – you should take note of the fact that you should atleast earn returns which are higher than the inflation rate in India.

And it is because of this reason that a lot of financially savvy NRI’s prefer to invest their surplus money in India which offers a good return on investments.

Which type of Bank Account should NRI use?

The first thing to be kept in mind is the type of account to be used for investing in India. NRI’s cannot use a normal savings account as only resident individuals are entitled for the same. If an NRI is using a savings account – this would be considered as illegal as an NRI can only use the following 3 types of accounts:-

  1. NRO Account – This is a rupee denominated account for NRI’s and the money which is earned in India should be deposited in this account. NRI’s receiving rent or any other income in india should use this type of an account. The interest earned on this type of account is taxable in India.

  2. NRE Account – This is also a rupee denominated account and is best suited for overseas savings which are remitted to India. The interest earned on this type of account is tax free in India.

  3. FCNR Account – This is a type of a fixed deposit account where the balance is maintained in foreign currency. The interest earned on this type of account is tax free in India.

    NRI’s who intent to use this money in India should use NRE Accounts whereas NRI’s intent to use this money outside India should ideally opt for FCNR Account. The reason for this is that the account should be in the same currency in which the money is expected to be used in future. For a detailed read on the type of accounts, kindly refer this article on: Type of Bank Accounts in India for NRI’s.

While dealing with the banks, the NRI should also take note of the fact that nowadays a lot of mis-selling happens in banks wherein the bank employees including the bank manager try to convince the NRI to invest in some other financial instrument by luring him with incremental returns. It is advisable for the NRI not to invest in any such instruments without fully understanding the financial instrument.

These financial instruments may or may not be suited to be requirements of the NRI and therefore, the NRI should either do his own research or hire a financial planner to guide him about investing in such financial instruments.

Investment Options in India for NRI’s

Let us quickly see what the various investment options available are for NRI’s to invest in India. This is not a detailed guide but a quick brief of the various options available with NRI’s.

1. Bank Deposits
Bank Deposits NRE and FCNR Deposits are wonderful investment options for NRI who are looking to invest in India. They offer a decent return on investment and the interest earned is also tax free.

These are also simple products which are easy to understand and NRI’s who are investing for less than 5 years can certainly invest a part of their savings in this type of account.

(PS: Sometimes, NRI’s also take a loan in their home country at cheaper rates and invest that money in India in NRE & FCNR Account. See if that works in your home country)

2. Real Estate

NRI’s are also allowed to invest in Residential and Commercial properties in India but are not allowed to invest in agricultural land in India.

Please also note that there have been several cases where people (both residents as well as NRI’s) invested in under-construction properties and the construction never got completed. Therefore, in case you are investing in real estate – it is advisable to invest only in properties whose construction has been fully completed.

3. Shares and Mutual Funds

The stock market has been one of the best money compounders in the past decade and will continue to do the same in the coming decade. Having said this, it is important to note here that investing directly in stock markets is a full time job which should ideally be done only by experts.

So if you are an expert in the field, you may think of directly investing in stocks. But in case you are not, it is advisable that you follow the mutual fund route.

Currently, there are more than 400 mutual fund schemes in India and it gets very difficult for the NRI to decide which one to invest in. The NRI should ideally choose that mutual fund which aligns with his financial goals.

4. Bonds and NCD’s

Another financial instrument in which NRI’s can invest their money are bonds and NCD’s. These are issued both by the Govt as well as private issuers.

The ones issued by the govt are completely safe as they are govt backed. The ones issued by private issuers are not govt backed and the investor should ideally invest only in those bonds which are AAA rated.

5. Gold

NRI’s can also invest in Gold which is considered as one of the safest assets across the globe. However, it is important to note that jewellery should not be considered as investment in gold as most of the times it is held for personal usage.

Infact, most Indians also have their emotions attached with jewellery and therefore would never like to sell it. And any investment which cannot be sold when the need arises should ideally not be considered as an investment.

And therefore, if investing in gold for investment purposes, the money should either be invested in gold bars or gold bonds.

These are some of the best investment options for NRI’s to invest their funds in India. It is also important to note that the NRI should not invest all their money in a single type of investment form and should ideally diversify in various investment types suited to his needs.

The NRI should also not fall prey to the financial products mis-sold by the banks and should do his own research or take help of a financial planner before investing in any of these products.

Karan is CA by Qualification with the rare distinction of being awarded All India Rank 22. He is also the founder of this website and is an expert in helping people save Taxes legally. He can be reached by booking an appointment for Tax Advisory Service.