Money Matters: Expert Reveals Why NRIs Living Outside India Invest Their Earnings In India

In recent years, there has been a trend among Non-Resident Indians (NRIs) living abroad and exploring new career and growth opportunities. Despite establishing their lives and careers in foreign lands, many NRIs choose to invest their hard-earned money back in India. This phenomenon has piqued the interest of economists, financial analysts, and policymakers alike. To shed light on this intriguing trend, we consultedCA Isha Jaiswal, Co-Founder - Grad Me Up and Finance Content Creator to know about the reasons why NRIs opt to invest their earnings in their homeland

Why Are NRIs Living Outside India And Investing Their Earnings In India?

According to the Ministry of External Affairs, 13.4 million NRIs reside outside India in places like the Middle East nations, the United States, the United Kingdom, Canada, Australia, etc. Indians migrate abroad in search of better job opportunities. Many of these NRIs also have dependents in India and want to provide for them.

Why Are NRIs Investing In India?

According to CA Isha Jaiswal, “The investment landscape in India offers an enticing opportunity for NRIs looking to diversify their portfolios. This is because NRIs can choose from a diverse array of options, ranging from conventional choices like real estate and equities to modern avenues such as start-ups and angel investing, allowing them to align with their risk preferences and financial objectives.”

Robust Economic Growth: India has emerged as one of the fastest-growing major economies globally, with a burgeoning middle class and a youthful demographic dividend. The Indian economy's resilience amidst global uncertainties is attracting NRIs seeking long-term growth opportunities. India's GDP growth, despite periodic fluctuations, has consistently outpaced many developed nations, offering promising returns on investments.

Diversification Benefits: Diversifying one's investment portfolio is a fundamental strategy to mitigate risks and enhance returns. According to the expert, “NRIs navigating the Indian investment get a lot of options. While there’s no one-size-fits-all strategy, a sound financial plan should include a mix of assets including insurance, mutual funds, equities, stocks, and real estate. It not only boosts long-term returns but also safeguards against the risks of being too reliant on a single asset class.”

Government Initiatives and Reforms: The Indian government has introduced several initiatives and policy reforms to boost foreign investments and ease business regulations. NRIs perceive these reforms as positive signals for long-term economic stability and growth.

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Various Types of Investment Options For NRIs:

General Investment Options:

• Insurance: Provides security and long-term wealth accumulation.
• Mutual Funds: Offer diverse market exposure and are easy to manage.
• Equities and Stocks: Opportunity for high returns, with India's markets offering annualised returns of 10-12% over the past 15 years.
• Real Estate: Long-standing popular choice with substantial investment, reaching $13.1 billion last year.

Specialised Investment Options:

• Unit Linked Insurance Plans (ULIPs): Offer flexibility in fund choice based on risk preference, easy liquidity, and returns comparable to equity markets.
• Renewable Energy, E-Commerce, and Infrastructure: Emerging sectors with high potential due to India’s fast-developing economy.
• Indian Securities: Includes equities that allow investment directly into the Indian stock market.

High Return Investments:

• Direct Equity
• Mutual Funds
• Real Estate
• National Pension Scheme (NPS)
• Unit Linked Insurance Plan (ULIP)

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Low-risk Investments:

• Fixed Deposits in NRO & NRE and FCNR Accounts
• Investments for High Net Worth NRIs:
• Non-Convertible Debentures or Company Fixed Deposits
• Government securities and T-bills
• Bonds
• Alternative Investment Funds
• Startups
• Portfolio Management Services
• Fractional ownership of Commercial Real Estate (CRE)
• Infrastructure Investment Trusts (INVIT)

The decision of NRIs to invest their earnings in India is driven by a combination of financial, and strategic factors. However, it is important to understand the conditions and restrictions imposed by the RBI before making any investments.

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