A one-stop step-by-step guide for the UK NRI investor looking to invest in India

According to the World Bank’s Migration and Development Brief, the Indian diaspora has remitted an astounding $80 billion back home. This has cemented India as the top recipient of remittances in the world. More than 32 million Indians reside outside India, per a Ministry of External Affairs recent report.

Immigrants from India turn into NRIs after securing better opportunities in other countries. Once they begin earning a decent income and can remit required funds to their loved ones back in India, they explore investment options in India. NRIs are spread across the world. There are about 3.51 lakh NRIs in the UK itself. However, like NRIs across the globe, UK-based NRIs also seek clarity about investment options in India.

Remember that for tax purposes and according to the Foreign Exchange Management Act (FEMA) regulations, NRIs and PIOs (Persons of Indian Origin) are treated the same. Before investing, a UK NRI will need a PAN number and must go through a one-time KYC process. The NRI must declare residency and citizenship details while completing the KYC. Apart from all this, the individual will need an NRI bank account, which will be used for every investment transaction. UK-based NRIs can open an NRI bank account with HDFC Bank as it is authorised to deal in foreign exchange.

There are three types of NRI bank accounts. Here are the details.

NRO – Non-Resident Ordinary Account

This account can be opened after or when an individual is on the verge of becoming an NRI. Banks usually designate the existing savings account as an NRO account. With this account, NRIs can manage all their Indian income, such as rent, dividends, gifts or pension. However, NRO accounts have repatriation limits, including foreign funds deposited in the account. Any repatriation also requires a tax-paid certificate from a certified CA. Interest earned on this account can be repatriated but would be taxed in India.

NRE – Non-Resident External Account

An NRI can hold foreign currency earnings in Indian rupees through an NRE account, which is fully repatriable. When an individual begins to reside outside India, he or she can open an NRE account. Funds for this account will be credited from the NRIs' foreign earnings. The deposits to this account would be converted to INR as per the prevailing conversion rates. The account holder can take out funds from India anytime without restriction. Interest earned in the NRE account is tax-free in India.

FCNR – Foreign Currency Non-Resident Account

This account can be opened once an individual becomes an NRI. It is neither a current nor a savings account. It is a deposit account with a pre-defined period of maturity. An FCNR account is maintained in foreign currency. This makes it different from NRO and NRE accounts. One can even choose from major currencies, which include USD, Sterling Pound, Deutsche Mark, Euro or Canadian Dollar etc. Interest earned is tax-free. Funds are entirely repatriable.

Fixed Deposits

Fixed deposits allow NRIs to deposit a particular amount of money for a pre-defined duration to earn a fixed rate of interest on the same. An NRI can open an NRE, NRO or FCNR fixed deposit. Interest earned from an NRE FD is tax-free, while an NRO FD is taxable. It is also essential to know that NRO fixed deposit account earnings are subject to TDS. However, an NRI can claim the refund by filing tax returns if the payable tax is less than TDS.

On the other hand, FCNR accounts are maintained in foreign currency, and the interest earned would depend on the deposited currency.

Mutual Funds

NRIs across the world, except Canadian and US-based NRIs, have no limitations when investing in mutual funds. Therefore, for UK based NRIs, this is a convenient asset class to explore for creating wealth. UK-based NRIs will need an NRE or an NRO account to invest in mutual funds.

Real Estate

This has been among the top choices when investing in NRIs. This is mainly because of the healthy appreciation in property rates, increasing rental income and the possibility of spending their post-retirement years in their homeland. NRIs can invest in residential and commercial properties, not agricultural lands, farmhouses or plantations.

Equities

Under the Reserve Bank of India's Portfolio Investment Scheme, NRIs can invest in stock markets. To do so, they must obtain a one-time approval to invest directly in equities. However, there are specific criteria they must follow.

• They cannot invest more than 10% of a company's paid-up capital

• They cannot indulge in trading shares on a non-deliverable basis.

UK NRIs will need to open a Demat account with a SEBI-registered brokerage firm to transact in the stock market. Apart from a Demat account, NRIs also need a trading account with a stockbroking firm and an NRE and NRO account with the bank.

Derivatives

Additionally, UK NRIs can dabble in the Future and Options (F&O) market. For this, however, the individual would need a clearing member to clear trades for allotment. It is important to note that all NRI investors must receive a unique custodial participant (CP) code from a clearing corporation. This is done based on the application submitted by the clearing member.

National Pension Scheme

This is a retirement savings scheme offered by the Government of India. This scheme allows a Permanent Retirement Account Number to all investors. This scheme is both cost-effective and tax-efficient. It also provides flexibility in the invested amount and regularity of investing. It offers decent ROI, regular income, along with a retirement corpus. UK NRIs holding Indian citizenship between 18 and 60 can invest in NPS through an NRE or NRO account.

Insurance

NRIs can invest and purchase insurance in India through specialised insurance policies for NRIs. These policies cover death, disability, diseases, and lumpsum benefits.

Bonds and Government Securities

The government issues bonds and companies to raise funds for projects. By investing in a bond or security, the investor becomes a lender. These investors are eligible to receive a fixed return on their investments. Through NRO and NRE accounts, UK NRIs can invest in government securities and bonds. NRE accounts completed at least three years are applicable for repatriation benefits. However, any maturity benefits credited to an NRO account are not eligible for repatriation.

HDFC Bank offers an array of solutions for NRIs, including accounts and deposits, loans, life insurance, payment services, and mutual funds. It also provides portfolio investment schemes, offshore investments, equities, derivatives, private banking, research reports, and depository services.

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