How Much Should NRIs Invest in the India Growth Story?

Every NRI we've come across believes in the India growth story and is eager to participate in it through stocks/mutual funds.

But NRIs, unlike resident Indians, face an interesting dilemma: How much should I invest in India?

Now we're not speaking absolute numbers like $50,000 or $1 million. That would be very difficult to answer through a blog.

Rather NRIs want to know what percentage of their investment portfolios should be allocated to Indian equity. The question arises because NRIs have two primary investment destinations: their country of residence and India.

The answer is absolutely not straightforward. It depends on your future plans, your country of residence and so many other factors.

In this article, we help you with a framework to answer this question so you can allocate just the right amount to India's growth story.

Why should NRIs invest in India?

Many NRIs believe in India’s high growth opportunities. As per the report ‘Opportunities for NRI Investments in India’ by NSDL, NRI remittances were about $100 billion.

According to a report by ASK Investment Managers, the Indian markets have outperformed the US, China and other major markets in the last 3-Y, 5-Y and 10-Y horizon. Over the past 10 years, the Nifty large-cap index delivered 10.9%, compared to 6% by the US index.

Also, according to the Netra June 2023 report titled ‘Early Signals Through Charts’ by DSP Asset Managers, the Indian stock market has outperformed the US, China, and the world equity markets in terms of real returns over the past 123 years, with an average annual return of 6.6%.

India’s economy is among the world’s fastest-growing economies, driven by strong government reforms, a powerful start-up ecosystem, and a young and skilled workforce. The Indian government has made it easier to do business in the country, attracting foreign investment from various sectors.

Thus, NRIs can benefit from India’s rising potential by investing in Indian assets.

How to invest in India?

India’s economic landscape, global positioning and growth across different sectors are some of the compelling reasons why NRIs are inclined towards investing in India.

The choice to invest in India can be to take advantage of its growth story or patriotism. Be it anything, investing across geographies is also a good way to diversify investments. 

Asset allocation plays a significant role in creating a well-diversified and balanced investment portfolio. The choice between stocks, bonds, and mutual funds will largely depend on your risk appetite. 

Stocks are highly volatile investments that have the potential to generate high returns in the long term.

On the other hand, bonds are comparatively low-risk investments that offer more or less guaranteed income. Sovereign-guaranteed bonds offer safety and assured returns.

Mutual funds are a great alternative to stock investing. As an NRI, you can invest in mutual funds and get exposure to a portfolio of securities. Mutual funds are a great way to invest in equity and debt instruments. Since mutual funds are managed by professional managers, you don't have to worry about buying and selling stocks or managing the holdings. 

If you are looking for passive investments and wish to diversify across geographies, Indian mutual funds can be a very good option. Investing in mutual funds requires little to zero attention on a day-to-day basis. Since these are well-diversified portfolios, a quarterly or bi-annual review and long-term investment horizon will serve the purpose well. 

For a detailed comparison, read our blog on Mutual Funds vs Stocks - How Should NRIs Invest in India?

How to invest in stocks and bonds?

You can use your NRE/ NRO account to invest in stocks and bonds through a demat account. To open a demat account, NRIs must submit an online request on the broker's website. Submit the essential documents as per the Officially Valid Documents (OVD) list. 

The documents must be attested by a local bank or the Indian Embassy in your country of residence. Upon verification of the documents and application form, the account will be opened. 

All this can be time-consuming, and any issue with the submitted documents or application form will likely delay the process further.

On the other hand, investing in mutual funds is hassle-free and can be done through online platforms like Inri. Simply  

On the other hand, investing in mutual funds is quite easy and can be done within no time. You don't require a demat account. Simply open an NRE or NRO account, and invest through online platforms like Inri. Create an Inri account and complete the compliance procedures (KYC and bank mandates) to start investing in mutual funds. 

How much should I invest in Indian stocks and bonds?

As an NRI, you can invest at least 5 to 10% of your income in India. It is important to note that how much you invest in India will also depend on the following factors:

• Planning to move back to India: To retire in India eventually, you'll need to boost your investment in Indian assets progressively. Also, the asset allocation will have to be dynamically adjusted when you are close to retirement. Initially, focus on high-return equities. And, when closer to retirement, prioritise capital protection and steady income. You can do this by reallocating from high-risk to low-risk assets like debt, fixed deposits, and government schemes.

Furthermore, you can gradually move your investments from abroad to India.

• Stay in the country of residence: If you're planning to retire abroad, investing in Indian markets is a smart move for diversifying your investments across borders. Investing in the Indian markets can be a great way to earn higher returns.

The allocation of funds can be quite different for NRIs living in different countries. It will also depend on your financial situation, goals and investments within the country. 

For instance, US NRIs can invest about 5 to 10% of their investable corpus in India. Similarly, UK NRIs and Gulf NRIs can allocate a higher portion (about) 20 to 30% and 40 to 50%, respectively. The suggested allocations vary based on the country of residence. Higher allocations towards Indian markets are because the home markets aren't performing well. 

Please note that these are just indicative figures, and the actual investment allocation will depend on many factors. It is advisable to consult a financial advisor who will help you with the right allocations. 

From the table below, you can see that the Indian markets have outperformed the major markets in 3Y, 5Y and 10Y horizon.

Source: Askfinancials, in local currency, till date: 31st August

The above returns are in local currency. And, despite the INR depreciation (3-4%) across major currencies, the Indian markets have grown faster than many.

The choice of how much to invest in each asset will also depend on your risk tolerance levels. If you are a risk-averse investor seeking guaranteed returns, then bonds are the right asset for you. And, if you are a risk taker, equity investments can be your choice.

Things to consider before investing in India

As an NRI investing in India, you should be mindful of the following:

• Bank Account: Open an NRE or NRO bank account, whichever is suitable.
• KYC and FATCA Compliance: Complete your KYC and FATCA compliances. It can either be a fresh registration or re-registration for both.
• Demat and Trading Account: Open a Portfolio Investment Scheme (PIS) or Non-Portfolio Investment Scheme to buy and sell stocks.
• Investment Options: NRIs can invest in stocks, fixed deposits, bonds, mutual funds, real estate, futures and options, etc. However, as an NRI, you cannot acquire more than 10% of the paid-up capital of an Indian company. Similarly, not all fund houses allow NRIs to invest in their funds. Only certain mutual funds allow NRIs to invest in them.
• Taxation: The taxation depends on the investment's holding period and type of asset. India has Double Tax Avoidance Agreements with 88 countries to avoid double taxation.
• Currency fluctuation and Exchange rate risk: These risks may impact investor’s returns. The Indian rupee has been depreciating against major currencies such as the Euro and USD over the years. As a result, NRIs investing in India may lose some value when they convert their earnings back to their home currency.

To Conclude

Though investing in the Indian markets is an attractive option for NRIs, challenges such as regulatory approvals, foreign investment regulations, repatriation of funds, and currency risks are creating hindrances and underwhelming experiences.

Inri simplifies the operational and regulatory challenges for you and also helps with easy repatriation and tax compliance. Investing in mutual funds is easier than ever before. You can invest across our carefully curated themes like Low-Cost Indexing, Top Active Funds, Hybrid - Equity and Debt Mix, etc. 

You can select mutual funds tailored to your specific financial objectives. Mutual funds offer diverse options to cater to a wide range of investor preferences. Within the equity category, you have the choice to opt for large, mid, small, flexi, or multi-cap funds. Conversely, if your aim is to secure a stable income, debt mutual funds that primarily invest in bonds are available. For those seeking a balance between growth and stability, hybrid mutual funds provide a combination of both equity and debt investments, offering the best of both worlds.

Alternatively, you can also explore the ‘Smart Investing’ section. Here, based on your risk comfort levels, investment horizon, and asset preferences, a well-diversified portfolio is curated. You can customise the investments based on your needs.