Best Ways for NRIs to Invest in Indian Equities

Best Ways for NRIs to Invest in Indian Equities

India is an oasis of growth in a desert. India has a huge NRI population, with millions of them living in various developed and developing countries across the world. While these NRIs stay and earn income in various countries, they face the challenge of limited investment opportunities in most developed countries.

Countries like the US, the UK, and Europe are battling high inflation, high interest rates, low economic growth or even recession worries, etc. As a result of these and the mature/developed nature of these economies, the long-term growth prospects of their stock markets look bleak.

On the other hand, the scenario is completely reverse in India. India is one of the highest growing economies in the world among the major economies. The RBI expects India's GDP to grow by 7% for FY 2024-25. The Indian economy is nearing the USD 4 trillion mark. As per Finance Ministry projections, India can become a $5 trillion economy in the next three years and a $7 trillion economy by 2030. By 2047, the Government has set a target of making India a developed economy. India may be a $30-35 trillion economy by then. All these numbers point to the huge investment and wealth creation opportunities India presents for domestic, NRIs, and other investors.

NRI Investments in India

Earlier, some NRIs focused on real estate investments in India. Real estate is illiquid, requires high capital investment and the growth potential is low compared to equity mutual funds. Some NRIs deal with their bank Relationship Managers. As a result, they end up investing money in banking products like fixed deposits. These are low-yielding financial products, taxed at slab rate, and sometimes unable to beat inflation.

How Can NRIs Invest in Indian Equity Mutual Funds?

As discussed earlier, India being a growth economy, presents tremendous investment opportunities for NRIs. There may be limited investment opportunities in the country where the NRI may be residing and working. However, in India, there is a plethora of investment opportunities for NRIs. Infact, given the current global sombre scenario, India presents the best investment opportunity for NRIs to invest their funds.

NRIs can invest in a number of financial products, including Indian equity mutual funds, in India. To invest in India, NRIs must follow the SEBI and RBI guidelines mentioned under the Foreign Exchange Management Act (FEMA).

To invest in Indian equity mutual funds, an NRI will need a Non-Resident External (NRE) or Non-Resident Ordinary (NRO) bank account with an Indian bank. The money in an NRE account is fully repatriable, i.e. it can be transferred out of India. An NRO account can be used for income earned in India like rent from property. The money from an NRO account can be transferred outside India, subject to certain limits, documentation, and tax compliances.

All AMCs in India accept money only in Indian Rupees. Hence, it is essential to have a bank account with an Indian Bank. The NRI must complete the Know Your Customer (KYC) formalities with the AMC. For NRIs from the US and Canada, there are certain restrictions with some AMCs.

Goal-Based Investing Approach

Like resident investors, NRIs should take the goal-based investing approach to achieve their financial goals. The NRI should take the help of an investment expert and get a comprehensive financial plan made to take care of all financial goals. Some of these include:

  1. Building and maintaining an emergency fund
  2. Term life insurance for all family income earners
  3. Health insurance for all family members
  4. Goal-based investing for goals like a child’s higher education and marriage, a retirement fund for self and spouse, buying a house, buying a vehicle, an annual vacation fund, etc.
  5. While investing for the above goals, make sure the investments are tax-efficient
  6. Making a will to ensure a smooth transfer of assets to the intended beneficiaries after the owner’s passing away

Why Should NRIs Invest in Indian Equity Mutual Funds?

Historically, Indian equity funds have given good returns. The same trend is expected to continue in the future due to India's bright economic growth prospects. Let us look at the returns given by some of the Indian indices.

Indian Indices - Returns




Since inception

Nifty 50




Nifty Next 50




Nifty Midcap 150




Nifty Smallcap 250




Nifty Microcap 250




Source: NIFTY Indices Report

Note: The above returns are as of 31st March 2024.


SIP Mode of Investment

In the above section, we saw how the Indian equity indices have given good returns in the past. The future outlook for the Indian economy continues to be good. When the Indian economy does well, the Indian equity indices will also continue to do well. However, as of April 2024, the Indian equity indices are trading near life time highs. The valuations are not cheap. 

There are a lot of events either going on or lined up that can lead to a lot of uncertainty. Some of these include the Union Elections in India, wars in Ukraine and the Middle East, high inflation and high interest rates across the globe, probability of recession in the US, slowdown in China, Presidential elections in the US in November, etc.

The above events can lead to a lot of volatility in the stock markets and can also lead to a short-term correction. Hence, it is recommended that the NRIs invest through the systematic investment plan (SIP) mode rather than lumpsum investments. An NRI can start a SIP(s) in equity mutual fund(s) for their long-term financial goals. SIPs can average the purchase price during volatility.

Taxation of Equity Mutual Funds for NRIs

The taxation of equity mutual funds (where equity holding is 65% or higher) for NRIs is similar to that of residents. If the equity mutual fund units are held for less than a year, the capital gain is classified as short-term capital gain (STCG). The STCG tax is levied at a flat rate of 15%.

If the equity mutual fund units are held for more than a year, the capital gain is classified as long-term capital gain (LTCG). The first Rs. 1 lakh LTCG in a financial year is exempt from taxation. On the incremental gain, the LTCG tax is levied at 10% without indexation benefit.

For NRIs, the dividend payments and redemption proceeds of mutual funds are subject to TDS by the AMC. As an NRI, if you are filing your Income Tax Returns (ITR) in a foreign country, you will need to check for the Double Tax Avoidance Agreement (DTAA) between your country of residence and India.

India Growth Story: An Opportunity for NRIs to Participate Through Equity Mutual Funds

For NRIs, investing in Indian equity mutual funds is better Indian stock markets are liquid with the potential for high returns. These are better than illiquid real estate and low-yielding fixed deposits. The Government's vision is to make India a developed economy by 2047 with a GDP of $30-35 trillion compared to today's around $4 trillion. As India progresses ahead to become a developed nation, there will be tremendous growth opportunities ahead. Indian equity mutual funds are one of the best ways for NRIs to participate in this growth journey and create wealth for themselves.

NRI Investments In India Mutual Fund For NRI In India NRI Investment Options In India

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