Best Short Term Investment Plans for NRIs

For those looking for the best short term plans in 2023, the landscape of investing in India offers numerous possibilities. This is especially true for Non-Resident Indians (NRIs) - from equities and mutual funds to fixed deposits and debt funds, there's an array of choices.

With that said, navigating the Indian investment scene can certainly be complex, with considerations like tax implications and understanding DTAA agreements. Despite certain challenges, such as limited stock options and operational obstacles, the potential for growth in India's markets is undeniable.

For NRIs who use the right strategies, this year holds the promise of crafting a well-rounded and prosperous investment portfolio. This article will guide you through the top short-term investment avenues for NRIs in 2023.

Best Short Term Plans for NRIs in 2023

Let’s take a look at some of the prominent short term plans for NRIs –

1- Bank Deposit Accounts

A bank's deposit account serves as a fundamental and secure avenue for NRIs to manage their finances in India. There are different types of deposit accounts tailored for non-resident Indians, catering to their unique financial needs and preferences.

The first category is the Savings Account.

Under this, we have:

• Non-Resident Ordinary (NRO) Account: This account can be opened either singly or jointly. The funds and earnings in this account are taxable in India. However, NRIs can repatriate up to a maximum of USD 1 million from it.
• Non-Resident External (NRE) Account: This can be a single or joint account, and it comes with a notable advantage — both the balance and earnings are exempt from Indian taxes. Plus, the entire amount is repatriable, offering flexibility to the account holder.
• Resident Foreign Currency (RFC) Account: Specifically designed for returning Indians, this account can be maintained in select foreign currencies like US Dollar (USD) or Sterling Pound (GBP). The primary benefit is that the account's funds are both tax-free in India and fully repatriable.

Current Deposit Accounts are somewhat similar but are more suitable for NRIs with regular business transactions. It includes the NRO and NRE accounts, each with its tax implications and repatriation limits.

Lastly, for those looking at short-term growth, the Short Term Deposit Accounts come into play. These include NRO, NRE, FCNR (Foreign Currency Non-Resident), and RFC fixed deposit accounts. These accounts allow NRIs to maintain funds in either INR or select foreign currencies. Although the tax implications vary, certain accounts, like the FCNR, offer tax-free earnings and the option to repatriate the initial deposit.

2- National Pension Scheme

The National Pension Scheme (NPS) is an initiative by the Indian government, providing a structured and reliable retirement investment avenue. It’s not just restricted to residents of India — NRIs can also tap into its benefits.

To start with NPS, NRIs are required to open an online account with an authorised service provider. A few basic documents, such as a PAN card, Aadhar card, and details of their NRO or NRE bank account, will be required.

The core of NPS revolves around allocating investments in debt, equity, or a blend of both. Investors have the flexibility to choose how their money gets allocated. They can either make an 'Active Choice', a split between debt and equity, or opt for 'Auto Choice', where funds are allocated based on their age to ensure a balance between risk and reward.

After reaching 60 years of age, the investor can start receiving annuity income for a steady financial flow during the retirement phase. Investing in NPS not only provides future financial security but also allows for a systematic approach to retirement planning for NRIs.

3- Stock Market

Stock markets offer a dynamic platform where securities, primarily shares of companies, are bought and sold. For Non-Resident Indians (NRIs) looking to tap into the economic potential of India, the stock market presents an attractive opportunity. By investing in shares of companies, NRIs can earn profits through capital appreciation and dividends.

To invest in Indian stock markets, NRIs need to be guided by the Portfolio Investment Scheme (PIS) of the Reserve Bank of India (RBI). This scheme outlines the procedures and limits for NRI investments in equities.

Here are the basic requirements -

• Bank Accounts: NRIs must have either an NRE (Non-Resident External) or an NRO (Non-Resident Ordinary) bank account.
• Demat Account: This is essential for holding the purchased shares in electronic form.
• Trading Account: To buy or sell shares, NRIs must have a trading account with a stock brokerage firm registered with SEBI.

Note: Certain restrictions apply to NRIs. For instance, they cannot invest more than 10% of the paid-up capital of an Indian company. Additionally, intraday trading (buying and selling on the same day) is generally not permitted.

The volatility of stock markets demands careful analysis, and while the returns can be lucrative, the risks are inherent.

4- Mutual Funds

Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. They have emerged as one of the most popular investment vehicles for NRIs due to several reasons -

• Diversification: Mutual funds offer exposure to a wide range of assets, reducing the risk associated with individual securities.
• Professional Management: They are managed by professional fund managers who make informed decisions based on in-depth research and analysis.
• Flexibility: NRIs can choose between various types of mutual funds like equity, debt, and hybrid based on their risk tolerance and investment goals.
• Investment Modes: One can either make a lump sum investment or opt for a systematic investment plan (SIP), which allows investors to contribute a fixed amount regularly.

To invest in mutual funds, NRIs need an NRE or NRO bank account. Additionally, they should be KYC (Know Your Customer) compliant.

5- Real Estate

Real estate remains one of the popular avenues for investment for individuals worldwide, including Non-Resident Indians (NRIs). The desire to own property in India, either as an investment or a future residence, has seen consistent interest from the NRI community. 

Some of the striking features of investing in real estate are listed below:

• Investment Potential: The value of real estate properties in India has observed a significant appreciation in selected regions, making it a good investment option for medium to long-term gains.
• Government Policies: The Indian government has implemented favourable policies that simplify the processes for NRIs to invest in the property market. This includes fewer restrictions and more transparent transaction methods.
• Types of Properties: NRIs can invest in various types of properties, from residential to commercial. Whether it’s plots, apartments, villas, or office spaces, the options are certainly plenty.
• Banking Support: To facilitate property purchases, NRIs can use specific bank accounts such as NRE (Non-Resident External), NRO (Non-Resident Ordinary), and FCNR (Foreign Currency Non-Resident) accounts.

6- Global Mutual Funds

Global mutual funds, as the name suggests, allow investors to invest in international markets. For NRIs, this provides a unique opportunity to diversify their investment portfolio beyond the boundaries of a single country.

• Exposure to Global Giants: Investment in global mutual funds can provide NRIs exposure to global corporate giants and sectors that might not be accessible in the domestic market.
• Currency Advantage: By investing in global markets, NRIs can also benefit from potential currency appreciation, further boosting their returns.
• Risk and Reward: While global mutual funds offer a broader diversification, they also come with their set of risks such as geopolitical events, currency fluctuations, and differences in economic growth rates.

For NRIs who have a deeper understanding of international markets or seek a diversified portfolio, global mutual funds can be an enticing proposition.

7- Direct Equity

Direct equity refers to the purchase of shares in individual companies with the intention of holding them in one's portfolio as an investment. Investing in direct equity can be a good option for Non-Resident Indians (NRIs).

• High Return Potential: The stock market, due to its volatile nature, offers the possibility of high returns, especially for those who are well-versed in market dynamics.
• PIS Requirement: For NRIs to trade in shares in India, they must operate under the Portfolio Investment Scheme (PIS) mandated by the Reserve Bank of India (RBI).
• Holding Restrictions: An NRI cannot invest more than 10% of the paid-up capital of any Indian firm.
• Operational Mandates: Several prerequisites are in place for NRIs to deal in direct equity -
  • Mandatory Demat Account for holding shares
  • Trading must be done through a SEBI-registered broker.
  • Only RBI-approved shares can be traded.
  • NRIs cannot short sell shares on the same trading day — they must first own shares before selling them.

8- Certificate of Deposits

Certificates of Deposit (CDs) are short-term financial instruments issued by banks and financial institutions. They are like fixed deposits but usually offer higher interest rates.

• Nature of Investment: CDs are typically promissory notes or can be issued in dematerialised form. They represent a bank's obligation to pay the invested amount with interest upon maturity.
• Tenure: CDs can have a maturity period ranging from as short as 7 days to up to one year.
• Return on Investment: Compared to regular bank deposits, CDs often offer higher interest rates.
• Liquidity: While CDs are meant to be held until maturity, they can be sold in the secondary market if there's a need for liquidity. This, however, can impact the returns.
• Safety: As they are issued by banks, CDs are considered relatively safe investments. However, it's crucial to invest in CDs from reputable institutions to mitigate risks.

Summing it Up

2023 presents a wealth of short-term investment plans for Non-Resident Indians (NRIs) across various financial avenues. From the foundational stability of bank deposit accounts and CDs to the potential of stock markets and mutual funds, NRIs can tailor their portfolio based on risk tolerance, liquidity needs, and financial goals.

While the Indian investment platform has its unique set of challenges, the growth potential is evident. By staying informed, understanding regulatory measures, and taking advantage of the diverse instruments highlighted in this article, NRIs are well-positioned to maximise their returns.