NRI Investment in India - NRIs can take the mutual fund route to invest in India
The adage ‘Home is where the heart is’ resonates in the hearts and minds of non-resident Indians (NRIs) such as yourself, who despite settling in other countries, continue to be connected with India. The attachment NRIs have for their motherland is evident from the international remittances India receives. According to the World Bank’s April 2019 Migration and Development Brief, India was the world’s largest recipient of remittances in 2018. The inflows grew 14% in the year to a whopping $79 billion. India was followed by China and Mexico at $67 billion and $36 billion, respectively.
While most of this money goes into family consumption (~59%), a large portion is invested in bank deposits (20%). Capital markets get a small share clubbed with real estate investment (~8%).
It is important that NRI investors take greater interest in capital markets to ensure their money works for them more effectively. While it might not be easy for many investors to pick individual stocks and securities for investment, they can opt for the mutual fund route to participate in capital markets. In addition to providing an avenue for investment, mutual funds also provide the benefits of diversification across asset classes, professional management, and an opportunity to be an integral part of the India growth story.
Let’s take a look at why, as an NRI, you should consider
investing in mutual funds in India and the type of funds you can choose to attain varied goals across the stages of your life.
Purpose of remittances (%)
Source: RBI’s India inward remittances survey 2016-17
Why NRI Should invest in India?
In addition to having your roots in India, and the fact that your extended family may still reside here, the country also provides an attractive investment destination for your financial planning and goal achievement. Some of the factors making India an attractive investment destination are listed in the infographic below.
^ Office of economic advisor and *NSDL
# United Nations Population Fund
NRI Investment in mutual funds to meet goals across life stages
It is also important to understand the rationale for you moving away from traditional fixed instruments towards the capital market to generate market-linked returns for your investments.
NRIs can map goals with appropriate mutual fund categories to generate optimum returns for their portfolio. As US-based independent investor Ralph Seger once said: “An investor without investment objectives is like a traveler without a destination.”
NRIs such as yourself should adopt goal-based investing wherein you allocate money towards different asset classes in sync with your risk capacity and time horizon, preventing any under or overexposure to any particular asset class. This, investment in mutual funds should be based on the goal horizon and risk profile. This approach inculcates discipline, encourages appropriate asset allocation, and measures the progress of goals.
For representation purpose.
As seen in the table above, short-term goals call for investment with relatively lesser risk. Hence,
debt mutual funds can be good option. For the medium-term horizon,
hybrid funds, which are a blend of equity and debt, can be a good choice.
Equity funds can be considered for long-term goals. Long-term investing endeavors to reduces the associated risk and evens out short-term market fluctuations.
The tax rate on short- and long-term capital gains from mutual funds for NRIs is similar to that for resident Indians. However, in case of the former, capital gains will be deducted at source at the time of the redemption of units. Further, if the country in which the NRI resides has a Double Taxation Avoidance Treaty (DTAA) with India, he/she need not pay double taxation in India and the country of residence.
As an NRI, you can earn a healthy return by investing in the Indian capital market, thus providing an edge to your portfolio. Mutual funds can be good medium to park your savings and benefit from the long-term potential of your birth country. However, due diligence of personal and scheme-related factors is essential before investing.
For equity funds: Short-term capital gains^ (STCG) tax for less than 1 year = 15%; Long-term capital gains^ (LTCG) tax after 1 year = 10%. For debt funds: ^STCG tax for less than three years = as per individual’s tax bracket of 10%, 20% and 30% ^LTCG tax after three years = 20% with indexation. For more details refer Tax Reckoner on www.sbimf.com
Investors shall always refer to the Scheme Information Document and Key Information Memorandum of the schemes carefully to understand the investment objective and associated risk factors of the mutual fund scheme before investing.
Any comparison mentioned in this material is for general information only and not intended to be relied upon as investment advice and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Information and content herein have been provided by CRISIL Research, a Division of CRISIL Limited, and is to be read from an investment awareness and education perspective only. Recipient are advised to seek independent professional advice before making any investments. The views / content expressed herein do not constitute the opinions of SBI Mutual Fund or recommendation of any course of action to be followed by the reader. SBI Mutual Fund / SBI Funds Management Private Limited is not guaranteeing or promising or forecasting any returns.
In view of the individual nature of the tax consequences, each investor is advised to consult his/her own tax consultant with respect to specific tax implications arising out of their participation in investments.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.