Top Investment Strategies for NRIs and OCIs in India

Key Investment Avenues for NRIs/OCIs

Direct Equity Investments:

NRI/OCIs can invest directly in Indian stocks through NRE or NRO account. NRE account investment is freely repatriable, through the Portfolio Investment Scheme (PIS), which requires a PIS account from an authorized bank (Normally, PIS account is from the same bank providing NRE savings account). There are some charges associated with PIS reporting by bank for Stock transactions on top of brokerage charges. Whereas NRO account stock investments don’t need any additional PIS account, it is cheaper in that sense, but the investment is not freely repatriable. However, even NRO Investment up to 1 Million USD per year can be repatriated in the current resident country of NRI/OCI, with some formalities done through CA showing the proof that taxes in India have been paid for all the income generated in India.

Portfolio Management Services (PMS)

Biggest hurdle for NRI/OCIs in direct Stock market investing in India is not so familiarity with the Indian Companies , their Business Strengths/weaknesses and current business trend etc. PMS offers to help here by providing the expert guidance along with execution of stock trading. PMS are normally High Risk Return investment avenue. Unlike Mutual Fund, in PMS, all stock investments are purchased and sold in the investor’s DEMAT account, which is managed by the Portfolio Manager. However, PMS has minimum 50 Lakhs INR investment criteria. Just like Direct Stock purchase, PMS investment can be through NRO or NRE-PIS.

PMS could be Market Cap oriented, also thematic etc. Most smaller Asset Management companies have just 1-2 PMS funds, which are Flexicap , multi asset type of funds, can invest in any market cap Stocks as well as in Gold, Debt, Real Estate through REITs etc.

Through our partner, you could invest with one of 15 Portfolio Managers and many more strategies. Full Details available HERE

Alternate Investment Funds (AIF)

Investors with high Networth, who have already invested in Equity markets through Mutual Funds or PMS could look at diversifying their portfolio by investing in Alternate Assets managed by AIFs. Most AIFs need minimum 1 Crore INR investment. Through different categories of AIF, NRI/OCI investors could invest in Angel Funds for startup investing, Private Equity Funds, Risky Debt Instruments, Leveraged instruments and complex Derivative trading related instruments.

AIFs mostly use Pooled Money from investors to invest in certain types of investments. For many such fund, Money can be invested over 1-2 years, not just in one shot, which might help many investors to arrange money at different interval (such as yearly salary bonus etc.).

Category I AIFs:

These funds invest in SMEs, start-ups, and new economically viable businesses with high growth potential. Examples: Angel Fund, VC Funds, Infrastructure Funds, Social Venture Funds. In terms of Taxation, just like PMS, all the Gains and Losses are taxed directly in the hands of investor.

Category II AIFs:

These could be Private Equity funds investing in unlisted stocks. It also could be a Debt Funds investing in complex corporate investments. It could also be just a Fund of Fund investing in various other types of AIF Funds. They can also invest in Real Estates and other distressed assets. Taxation is same as Category I AIF.

Category III AIFs:

These fund use complex trading strategies including Leveraged trading, Derivatives (Futures and Option)etc. These could also be Private Investment in Publicly listed stocks and Hedge Funds. In terms of Taxation, all the income (Business Income, Dividends, Capital Gains) are taxed at Fund Level. Long Short funds , Hedge Funds are this category AIFs.

Different category of AIFs have different tax structure, not all are suitable for resident of all countries (depends on the Tax Treatment on Foreign capital gains by individual countries)

We have further details on this and our partner’s AIF related offerings HERE.

Fixed Deposits (FDs):

Both NRE and NRO fixed deposits offer competitive interest rates compared to other countries. NRE FDs are tax-free in India, while NRO FDs are subject to Indian taxes. If an NRI/OCI are resident of a country in which there are no income taxes (such as UAE etc.), then NRE FD becomes very lucrative as it is a Tax Free income. You could invest in NRE FD many Financial institutes through us using your NRE account

Mutual Funds:

Mutual Funds are highly regulated and low fees financial instruments. Mutual funds provide diversified exposure to Indian equities, debt and Multi Assets.  NRIs can invest in Indian mutual funds via Non-Resident External (NRE), Non-Resident Ordinary (NRO) accounts. NRE investment in Mutual funds are freely repatriable to outside of India, whereas NRO Mutual Investment returns are not repatriable directly. In general Mutual Fund investments are easy to start, they don’t need any DEMAT account for Folio based investment.

MFs are highly regulated by the Stock Market regulator SEBI. Many Retail Investors have grown their money to many times through long term investment in MFs. Mutual Funds could invest in variety of asset classes. There are numerous combinations of Market Cap (Large, Mid and Small cap), Asset Classes (Like Gold, Debt, Equity), Sectors (e,g, IT Industry), Themes (e,g, Renewable Energy) and many sub categories.  There are way too many options of investment through Mutual Funds, hence expert advice could help to a great extent to choose the appropriate MFs suitable for the individual investor.

Please look at details of Individual Mutual Funds investments nuances and our offerings HERE.

Additionally, please see how to build a Portfolio of Mutual Funds for large investments HERE

Real Estate Proxy Investment:

REIT (Real Estate Investment Trust)

Easiest way to invest in Commercial Real Estate in India for both Rental Income and Capital Appreciation is through listed REITs . As of 2024 there are four stock market listed REITs in India (Brookfield India REIT, Embassy Office REIT, Mindspace Business REIT and Nexus Select Trust). Units of these REITs can be purchased through Indian Stock exchanges. These listed REITs provide high dividends as they distribute 80-90% of their profit as dividends and small capilat appreciation.

Alternatively There are Private REIT or equivalents funds as well which invests also generate income through Asset appreciation as well as as Commercial Real Estate Rents. They could provide higher returns from the listed REITs as they invest in more riskier high return assets. These investments happens through AIF route.

Real Estate Sector Mutual Funds

Proxy investment on Residential Real Estate also happens through investing in the Real Estate Builder companies and other associated stocks through Real Estate Mutual Funds. Additionally, These funds also invests in the Corporate Bonds of such Real Estate related companies.

Real Estate Focused AIFs

Alternative Investment Funds (AIF) contributed significantly in the growth of both Residential and Commercial Real Estates in India. AIFs typically invest in the projects which are mid to late stage, sometimes helps to revive stalled projects struggling due to financial crisis. AIFs typically invests in High return Office Spaces, Warehouses, Premium and Affordable Housing Projects.

Retirement Mutual Funds/ National Pension System (NPS):

NPS and Retirement Mutual Funds can be cheap and effective retirement investment tool for NRIs who plans to spend some of their retirement life in India or those who are not sure about it. For these NRI/OCIs it is advisable to build some Retirement corpus in India through NPS or Mutual Funds.

Please see HERE details on Retirement Investment planning in India.

Considerations for NRI/OCI Investors including Taxation

Regulatory Compliance: NRIs must comply with FEMA/FATCA regulations/declarations and specific investment guidelines from SEBI and RBI. For fully repatriable direct stock market investment or PMS investment, there is additional hassle of opening a PIS account and paying some additional PIS account charges.

Currency Risk: Changes in currency exchange rates can affect the value of investments when converting from rupees to other currencies.

Tax Residency Status: Tax obligations depend on the number of days spent in India. Income earned in India, including rent, capital gains, and interest, may be taxable based on residency status. India has Double Taxation Avoidance Agreement (DTAA) with many countries, allowing NRIs to avoid double taxation on their income.

Different KYC/Enrolment process for NRI/OCI: The process of doing KYC updates and onboarding to any Indian Financial instruments is much different for NRI/OCIs compared to resident individuals. In many cases and investor need to have an Indian Mobile number for getting the investment updates.