Indian Government Schemes for NRI

There are multiple government schemes for NRI in India that allow overseas Indians to invest according to their financial goals and risk appetite. Some options are relatively stable and income-focused, while others are linked to market performance and may offer higher long-term growth potential.

Common investment avenues available to NRIs include:

• NRE, NRO, and FCNR fixed deposit accounts

• Mutual funds across equity, debt, and hybrid categories

• Direct investment in shares and listed companies

• Government bonds and government securities 

Many times, NRIs use these options for practical reasons rather than aggressive investing. For example, someone working overseas may want to maintain savings in India for retirement, future relocation, children’s education, or property purchases. Others may simply want to diversify their investments across countries.

Fixed deposits are still among the most preferred choices under government schemes for NRI investors. The reason is fairly straightforward. They are easy to understand, relatively stable, and do not require active monitoring like market-linked products.

Under a fixed deposit, money is deposited with a bank for a fixed tenure, and interest is earned at a pre-decided rate. The interest payout may happen monthly, quarterly, or at maturity depending on the bank and deposit type.

For NRIs, fixed deposits are generally available through three main account types.

Non-resident external (NRE) fixed deposit account

An NRE fixed deposit account is mainly used to deposit income earned outside India after converting it into Indian rupees. A few practical benefits of this account include:

• Interest earned is tax-free* in India 

• Both principal and interest can be repatriated abroad 

• Deposits are maintained in Indian rupees 

• Suitable for parking overseas earnings in India 

Non resident ordinary (NRO) fixed deposit account

An NRO account is generally used to manage income generated within India. This may include rent, pension income, dividends, or earnings from other domestic assets. Some key features include:

• Useful for handling income earned in India 

• Interest income is taxable in India 

• Repatriation is allowed within specified limits 

• Suitable for routine financial transactions in India 

Foreign currency non-resident (FCNR) fixed deposit account

An FCNR fixed deposit allows NRIs to maintain deposits in foreign currencies instead of converting funds into Indian rupees.

This becomes useful when investors want to reduce the impact of currency exchange fluctuations. Key highlights include:

• Deposits are held in foreign currencies 

• Helps reduce exchange-rate related risk 

• Interest earned is tax-free in India 

• Funds remain fully repatriable 

The benefits of investing in an FD for NRI include:

• Earn guaranteed¹ and tax-free returns

• Comes with flexible tenures of 7 days to 10 years

• Offers a better interest rate than a savings account

• Premature or partial withdrawals are allowed

• Returns are compounded quarterly, semi-annually, or annually

The National Pension Scheme (NPS) is an Indian Government’s pension scheme for NRIs and resident Indians. You can open an NPS account with an authorised bank or a post office, and make regular investments in it. The minimum amount required to open an NPS account is ₹500. Post that, you need to invest at least ₹6,000 in it every year till your retirement.

The investments made in NPS accounts are invested in a combination of assets, including equities, corporate bonds, and government securities. You can choose to decide your asset allocation according to your life stages.

Once you attain the age of 60, you can withdraw up to 60% of your NPS corpus, and the remaining 40% will be used to provide you with annuity benefits.

Of late, mutual funds have emerged as popular investment tools for all types of investors, including NRIs. They pool investments from individual investors, institutions, and high net-worth investors, and invest them in different money-market instruments², including equities, bonds, and government securities.

Mutual funds are offered by Asset Management Companies (AMCs). There are a few government-owned AMCs in India, which allow NRIs to invest in mutual funds along with resident Indians.

Another popular choice among the government schemes for NRI in India is mutual funds. A mutual fund is a collection of capital from many investors that's combined into a single investment and held in a variety of financial instruments, all of which may be equities, bonds, money market securities, and treasury securities. 

The investments are handled by asset management companies (AMCs) and their professional fund managers. 

Mutual funds have market risk as compared to fixed deposits. On longer time scales, however, they might have better growth potential. This is why many NRIs make a financial plan with the inclusion of mutual funds, particularly for long-term investments. 

The most crucial aspect is that mutual funds in India are regulated by the Securities and Exchange Board of India, ensuring transparency and investor protection. 

In general, NRIs need to have an NRE, NRO or FCNR account for investment and payment purposes in mutual funds.

Equity mutual funds

Equity mutual funds primarily invest in shares of companies as well as instruments related to equity. Typically, these funds are best used for long-term wealth building. Key points: 

• At least 65% of investments are allocated to equities 

• Greater return in longer timeframe 

• Performance can be impacted by short-term market fluctuations

• Suitable for investors comfortable with moderate to high risk

Debt mutual funds

Debt mutual funds are schemes that invest in debt instruments like government securities, treasury bills, corporate bonds and money market products. Key points:

• Generally, less volatile than equity funds

• Suitable for conservative investors

• Focuses on relatively stable income generation

• Can provide stability during uncertain market conditions

Many times, investors use debt funds to balance the risk within their overall investment portfolio.

Hybrid or balanced mutual funds

Hybrid mutual funds combine investments in both equity and debt instruments. This balanced approach helps reduce dependence on a single asset class. Key points:

• Diversifies investments across equity and debt

• Balances growth potential with stability

• Suitable for moderate-risk investors

• Helps create a comparatively balanced portfolio 

Basically, hybrid funds may suit investors who want exposure to equity markets but are not comfortable with taking full market risk.

Mutual fund providers for NRIs

Several Indian fund houses allow NRIs to invest through compliant banking and KYC procedures.

Before investing in any government scheme for NRI investors in India, it is essential to go through the tax regulations, repatriation policies, investment goals, and risk exposure thoroughly. 

In reality, NRIs can use a mix of fixed deposits and market-linked investments to ensure a balance between stability and asset growth.

The benefits of investing in mutual funds include:

• You can choose between equity, debt, and hybrid mutual funds as per your risk appetite and investment horizon.

• You can invest as a lump sum or through a Systematic Investment Plan (SIP).

• They provide potentially better returns than most fixed-income generating instruments.

As an NRI, you can also invest in government bonds and securities, including treasury bills, PSU bonds, and RBI bonds (also known as the G-Sec bonds). They are issued by state and central governments in India to raise capital from public investors.

Government bonds come with fixed tenures, ranging between 5 to 40 years, and provide interest to investors.

Typically, there are three types of government bonds:

• Fixed-rate government bonds
  These bonds offer fixed interest rates for the entire tenure.

• Floating-rate government bonds
  These bonds offer fluctuating interest rates as per the prevailing market conditions.

• Inflation-indexed bonds
  The interest rates are adjusted according to the inflation rate in India.

You can choose between any of the NRI investment plans in India and invest in them to fulfil your diverse financial goals. However, ensure that you meet the RBI and FEMA guidelines for NRI investors. Additionally, you should also be mindful of the laws of the country in which you are currently residing.