Introduction Non-Resident Indians (NRIs) are permitted to invest in a variety of Indian financial and physical assets, subject to regulations under the Foreign Exchange Management Act (FEMA), Reserve Bank of India (RBI) directives, and applicable tax laws. This document outlines permitted asset classes, regulatory provisions, and relevant restrictions for NRI investments in India.
1. Regulatory Overview NRIs can invest in India under the portfolio investment scheme and other routes notified by the RBI and SEBI. Specific asset classes may have restrictions on repatriation, holding period, or investor eligibility.
- Stock market investments must be made on a delivery basis.
- Purchase of agricultural land, plantation property, or farmhouses is prohibited for NRIs.
2. Permissible Investment Avenues
a. Fixed Deposits NRIs can invest in bank fixed deposits through:
- NRE (Non-Resident External) FDs: Funded by foreign income, held in INR. Interest is exempt from tax in India under Section 10(4)(ii) of the Income Tax Act, 1961. Both principal and interest are fully repatriable.
- NRO (Non-Resident Ordinary) FDs: Pertains to income earned in India (e.g., rent, dividends). Interest is taxable and subject to TDS. Repatriation is allowed within RBI-prescribed limits.
- FCNR (Foreign Currency Non-Resident) FDs: Held in foreign currencies like USD, GBP, EUR. Tenure ranges from 1 to 5 years. Both principal and interest are fully repatriable and not subject to exchange rate risk.
b. Equity and Mutual Funds
- NRIs can invest in shares of Indian companies through designated accounts under the Portfolio Investment Scheme (PIS/PINS), as governed by RBI guidelines.
- Intraday trading is not permitted; only delivery-based transactions are allowed.
- Mutual fund investments are permitted in equity, debt, and hybrid schemes, subject to KYC and FATCA compliance.
c. National Pension System (NPS)
- NRIs aged 18–70 can participate in NPS under existing eligibility norms. Contributions are voluntary and subject to applicable tax rules.
d. Public Provident Fund (PPF)
- New PPF accounts cannot be opened by NRIs. However, accounts opened before acquiring NRI status may be continued until maturity as per Ministry of Finance notifications.
e. Real Estate
- NRIs may invest in residential and commercial properties without prior approval.
- Use of Power of Attorney is permitted for managing transactions.
- Purchase of agricultural land, plantations, or farmhouses is restricted.
3. Fixed-Income Instruments
a. Government Securities (FAR route)
- NRIs can invest in specified Government of India securities under the Fully Accessible Route (FAR) without investment limits (RBI Notification, 2020).
b. Public Sector Undertaking (PSU) Bonds and Capital Gain Bonds
- Selected PSU bonds are accessible to NRIs. Capital gain bonds under Section 54EC of the Income Tax Act are available for LTCG exemption, subject to investment limits and lock-in.
c. Non-Convertible Debentures (NCDs)
- NRIs may invest in listed NCDs under RBI-permitted norms. Repatriation and taxation depend on account type and issuer terms.
d. Bharat Bond ETF and Fund of Funds (FoF)
- Direct investment in Bharat Bond ETFs is restricted. Select Fund of Fund schemes may be accessible to NRIs, depending on AMC policies.
4. Market-Linked Instruments
a. Real Estate Investment Trusts (REITs)
- REITs allow indirect exposure to income-generating real estate assets. Regulated by SEBI, these instruments are traded on stock exchanges.
b. Alternative Investment Funds (AIFs)
- NRIs may invest in SEBI-registered AIFs, subject to minimum investment norms:
- Category I: Start-ups, SMEs, infrastructure
- Category II: Debt/equity instruments
- Category III: Complex or high-risk strategies
- Minimum investment: ₹1 crore (or ₹25 lakh for employees/directors).
5. Operational Considerations
- All investments must comply with FATCA/CRS reporting if applicable.
- NRI investors should evaluate applicable tax liability, repatriation norms, and investment tenure.
- Banks and fund houses may impose additional due diligence requirements.
Conclusion
NRIs and OCIs can access a broad spectrum of regulated investment avenues in India—from safe deposits and government bonds to equities, mutual funds, and real estate. Each product has specific rules on taxation, repatriation, and eligibility. Staying within FEMA, RBI, and SEBI frameworks ensures compliance while enabling NRIs to diversify their portfolios in India.
Disclaimer This document is for informational purposes only and does not constitute investment or tax advice. Investments are subject to market and regulatory risks.
Sources
https://incometaxindia.gov.in/pages/acts/foreign-exchange-management-act.aspx