Investing By NRIs

I am a non-resident Indian (NRI). Are NRIs allowed to invest in Indian mutual funds? If yes, what is the incentive for people like us?
-Saloni Verma

Yes, NRIs are allowed to invest in mutual funds in India. The cheques can either be drawn on your FCNR/NRE bank account (on a repatriable basis) or NRO/NRSR (on a non-repatriable basis). You will also need a PAN number.

Since you are based abroad, Indian mutual funds may well serve your needs. A fund can offer you a diversified portfolio of debt and equity securities, or a mix of both. On the fixed income side, higher interest rates on Indian debt securities make it an attractive option compared to developed markets where interest rates are on the lower side. Debt funds would be an ideal way to start your investment innings here. The clear differential between interest rates will also negate the impact of any adverse movement in the exchange rate. However, we suggest that you park your funds for the long-term as short-term investments won't yield much.

Currency risk could be significant in the short term, as witnessed recently. However, over the long term, these fluctuations tend to smoothen out. Further, the current economic indicators point to a strengthening of the rupee over the long term - something that could work in your favour. The Indian economy is one of the fastest growing economies in the world. Also, loads are on the lower side vis-a-vis markets like the US. Among equity funds, there are a number of funds-generally focused on larger and more liquid stocks which have a good track record. Further, most fund houses, banks and brokerages give investors the option of investing on the Internet. As for incentives, there are no special tax breaks for NRI investors.

This article was originally published on January 15, 2008.