Transparency, liquidity and ease should be considered

Q. What kind of INVESTMENTS are available in India? I am an US citizen of Indian origin and I plan to live in India for a few months every year?

Expert Comment: There are many INVESTMENT options available to a Person of Indian origin having a non-resident India (NRI) status. As you plan to stay in India only for a few months in a year, you will continue to enjoy the status of an NRI.

You need to ensure you have a Permanent Account Number (PAN) as this is a mandatory requirement before you make any INVESTMENT in India. And the investment will be done via your non-resident external (NRE) or non-resident ordinary (NRO) account. Any amount repatriated from your home country, i.e. the US, can be done in an NRE account. NRE account in this case is preferable as the money can be easily transferred back to your home country. In case the receipts—rental income, gifts received, salary or consultancy (if you intend to work in India) are originating from India, then it cannot be transferred to an NRE account. In this case, you are required to open an NRO account. If you prefer to keep your money in foreign CURRENCY then you can open a foreign currency non-resident account.

The advantage that an NRE account carries over an NRO account, besides ease of remittance, is taxability. NRE account is a tax-free account. So, if you want to make a low-risk and secure investment, you can go for an NRE fixed deposit, which is tax-free in India.

You are also allowed to invest in Indian equities, directly as well as through mutual funds (MFs). You need to open a demat account if you want to invest in stocks. However, it is recommended that you invest via MFs. At the same time, there are restrictions for NRIs, and more so for US citizens. Some fund houses do not accept INVESTMENTS from NRIs, including US citizens. You can alternatively invest via offshore MFs, which are launched in your home country and investment is done in India. They may be more expensive on account of charges but allow you to invest in Indian equities and do not carry the risk of foreign exchange fluctuation, which can otherwise change your real return. This can have a meaningful effect if you plan to remit the money back to the US.

There are many investors who prefer INVESTING in real estate as they believe this asset class offers huge appreciation. But it also has its own set of challenges—transparency and liquidity are not easily available.

You need to decide what suits you the best. Whether it is the comfort and convenience of a tax-free deposit in an NRE account, participating in the India growth story and INVESTING in equities or do you want to test the real estate market in India.