Other Investment Options For NRIs

In addition to the most popular instruments for investments like Mutual funds, Equities, Real Estate or Gold, there are few other investment options available for NRIs/PIOs/ OCIs. Let us have a brief look into those options as well :

National Pension Scheme (NPS)

If you are looking for a tax-efficient investment option, you can consider investing in NPS (National Pension Scheme). This is a cost-effective, easily accessible, and tax-efficient way to invest your money. NRIs can open an NPS account online if they have a PAN card and a bank account. Backed by the Indian government, the NPS is seen as a way to help build savings for retirement while enjoying tax benefits. The returns offered by NPS are much higher compared to traditional tax-saving investments such as the Public Provident Fund. On average, NPS tend to offer 8-10 per cent annualized returns.

This pension scheme allows Indian citizens to save for retirement. You need to be between the ages of 18 and 60 to become a member of the NPS. There are two accounts each with its own rules and regulations.

Tier 1 Account – All payments and funds in this account are locked until retirement. If you retire before the age of 60 you may take 20% of the investment as cash. You are obliged to invest the rest into an annuity (an investment that pays you a fixed yearly amount). Retiring after 60 will allow you to take 40% as cash and the rest must be invested into an annuity.

Tier 2 Account – Only tier 1 account holders are allowed to open tier 2 accounts. Tier 2 accounts are unrestricted so you can deposit and withdraw money as you wish. You can also decide how the portfolio of your tier 2 account is structured. There are many types of investments that you can choose from to help you to create a diversified investment strategy.

An NPS is not exempt from tax. The capital gains aren’t taxed, but all payouts are taxed according to your tax slab (the tax bracket under which your Indian income is classified).

List of NPS Fund Managers

Currently, there are 8 Fund Managers who are managing our NPS corpus and they are as below :

Birla Sun Life Pension Scheme
HDFC Pension Fund
ICICI Prudential Pension Fund
Kotak Pension Fund
LIC Pension Fund
Reliance Capital Pension Fund
SBI Pension Fund
UTI Retirement Solutions

Certificate of Deposits

As per the RBI, a certificate of deposit is a negotiable money market instrument. A negotiable instrument guarantees for the repayment of the principal amount along with the pre-specified earnings. One more benefit of such an instrument is that you can demand the payment or can get at the set time. Moreover, you also know the issuer of such instrument. The RBI is the apex body and issues guidelines for the issue of the certificate of deposit in India.

Certificate of Deposits (CDs) is usually used as a short termed investment. It almost works like a fixed deposit, but the holder of a CD may sell it. You need a dematerialized account to buy and sell CDs. A CD has a maturity date by which it promises to repay a certain amount. Please note, amounts invested into CDs are typically very hard to return to dollars.

he RBI permits individuals, corporations, companies, banks, trusts, funds, associations to purchase a certificate of deposit. There are some limitations to NRIs (Non-Resident Indians). NRIs can subscribe to Indian certificate of deposits. However, they have permission to subscribe only on a non-repatriable basis. It means that the NRI holder of the CDs cannot endorse it to another NRI in the secondary market. As a single subscriber, you can invest in CDs for INR 1 lac and in multiples of INR 1 lac only.

Bonds and Non-Convertible Debentures (NCDs)

Bonds and NCDs have risk involved, but it can also serve as a good investment option.

There are three main bond categories:

PSU Bonds– Public Sector Undertakings Bonds (PSU) are contracts with a maturity date. You in effect loan money to a company and they promise to repay it with interest on a specific date (called the maturity date). The interest rate on a PSU will be determined by the creditworthiness of the company who issues it. These investments are taxed at 20% if you sell it after owning it for more than 3 years.
Non-Convertible Debentures (NCD)– This debt is secured by the company’s assets. The interest rate will, therefore, be a bit lower as secured debt has less risk involved. But, the interest rate on NCDs will still be very competitive when compared to returns on investments like equities.
Perpetual Bonds– These bonds don’t have a maturity date so there is no date by which it pays out. The issuing company, however, promises to pay the holder a set amount of returns per year. The holders of perpetual bonds trade it on the open market. Market conditions and your willingness to sell will determine if you make a profit with the selling of this investment.

Here are some of the available government and private bonds running in the market.

The income by way of interest on these Bonds is fully exempt from Income Tax and shall not form part of Total Income as per provisions under section 10 (15) (iv) (h) of I.T. Act, 1961. These bonds are generally issued by Government Backed entities and thus have very low default risk.

Other General Features are:

These bonds can be applied in Physical or Dematerialized mode
These bonds generally come with long tenures of 10, 15 and/or 20 years, however, these bonds can be traded on the listed exchange if applied in demat mode
There is no Cap on investment made in these bonds
Retail Individual Investors get higher interest rates, so for an Individual, HUF to be eligible for higher rates the maximum investment amount is Rs.10 Lakhs
The interest offered is benchmarked to the Government security of similar maturity, subject to conditions laid down by CBDT.
These bonds however, do not provide any additional tax benefits

Capital Gain Bonds (54EC Bonds):

According to section 54EC, any person (individuals, HUFs, partnership firms, companies etc.) can avail exemption in respect of long-term capital gains (arising from the sale of long term capital asset other than equity shares and securities), if the capital gain is invested in Capital Gain bonds. The exemption will be the amount of capital gain or the amount of investment made, whichever is less. Interest rate offered on these bonds is 6% per annum. The exemption is subject to:

The investment is made within a period of 6 months from the date of transfer of the asset
Lock-in-period of 3 years
Bonds sold, transferred or converted into money or any loan or advance taken on security of such bond within a period of 3 years from the date of acquisition, the capital gains earlier exempt are taxable in the year of sale or transfer of the bonds
Maximum investment limit of up to Rs. 50 Lakhs in a Financial Year per individual.
If the amount invested in bonds is less than the capital gains realized, only proportionate capital gains would be exempt from tax.

(Source: Moneycontrol and other financial blogs)