Investment Options for a Non Resident Indian (NRI)

NRI want to invest in India and with increase in liberalization, more and more opportunities are available for investment in India. With the growth of Indian Companies and Global Acquisition made by Indian firms in last two years, many sectors   emerged as an investment option in India such as real estate etc.

In this discussion we shall first discuss the process to be followed by NRI for investment and the area’s where NRI can make investments.

Bank Accounts

One of the first things you should know as an NRI is that your existing bank accounts are no longer valid. The Foreign Exchange Management Act (FEMA) requires you to inform all the banks where you have an account, be it savings or deposits, about your changed residential status.

The banks will then classify your account as NRO (Non-resident Ordinary). Except for the change in nomenclature, there is nothing new about the account. You can continue using it as before. Payment of EMIs (Equated Monthly Installment) can go on. You can also hold the NRO account jointly with a resident. But the balance in the NRO account cannot be remitted outside India.

If you want the funds in your account to be freely repatriable outside India, an NRE (Non-Resident External) account would be ideal. This account will be maintained in rupees and any debit or credit of foreign exchange will be converted into rupees.

It cannot be opened jointly with a resident but you can allow a resident to operate it on your behalf.

For example, you can authorise your local relative or friend to make local payments or even remit money to you through this account by giving him / her a power of attorney.

Investment options

NRIs can invest only in five asset classes in India — bank deposits, stocks, mutual funds, real-estate and insurance. You can also invest in government securities and company deposits. But you cannot invest in PPF (Public Provident Fund), or bearer instruments such as NSC (National Savings Certificate) or Kisan Vikas Patras once your residential status changes.

Though you are barred from making any fresh investments, existing ones can be left undisturbed. However, they cannot be extended beyond maturity. You can continue to make periodic contributions to the existing PPF account even when you are abroad through your NRE or NRO account. When the investments mature, the proceeds will be credited to the NRO account.

Banks allow NRIs to invest in deposits through FCNRB (Foreign Currency Non-Resident (Banks) accounts. These are term deposits and can be maintained in some currencies such as the US dollar, pound sterling and yen etc. The funds in this account can be repatriated.

Equity Investments

With the stock markets on a roll, you are welcome to join the party. As an NRI, you are allowed to invest to your heart’s content in both stocks and mutual funds.

While you can continue investing in IPOs (Initial Public Offers) unmindful of your NRI status, there are some procedures to be followed when investing in the secondary market. All along, as a resident, you would have used a demat (dematerialized shares) account to buy and sell shares.

Now, this demat account has to be closed and the shares are to be transferred to a new NRO Demat Account. After this, you can either continue to hold those shares or sell them.

Although an NRO account means that funds are non-repatriable, the Reserve Bank of India allows funds from the sale of financial assets to be remitted outside India after some paperwork. Hence, wherever you are, you can enjoy the proceeds from the sale of shares.

To invest from abroad, you need to open a fresh NRI PINS (Portfolio Investment Scheme) demat account. PINS is a scheme of the RBI under which NRIs can buy and sell shares by routing them through their NRE / NRO account. (An NRE account is preferable, since you can freely transfer the funds abroad after selling the shares). Speculative transactions are not encouraged under PINS. Hence, you need to take / give delivery of shares.

For mutual fund investments, there are no procedural changes. Money can either be remitted from abroad or moved out of your NRE / FCNR accounts maintained at a local bank.

The redemption or the dividend proceeds will be credited to the same account. Again, investments can be made both on a repatriable and on a non-repatriable basis.

For these purposes, the PAN card you obtained when you were a resident will hold good. You need not apply afresh.

Insurance and Real-Estate

Presently, NRIs can invest in life insurance policies in India without any limit on the cover. Some companies offer foreign-currency denominated policies and also allow you to pay the premium in foreign currency.

You can also invest in residential and commercial property in India without obtaining any special permission from the RBI.

Investment in agricultural land/plantation property/farm house is, however, not allowed.

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Endowment versus money back Policy

Selecting insurance products can be confusing. There are products like unit-linked insurance plan (Ulip) where the policyholder can choose to invest in different securities and get market-related returns. Then, there are plans that promise to return a fixed sum.

However, there have been two kinds of plans that have been popular with every person seeking insurance – endowment and money back plans. And there is a confusion that exists on the difference between the two. Here’s a primer:

Plans that return money during the policy tenure are money-back policies. These plans, usually, give a fixed percentage of the sum assured periodically. In a 15-year policy and sum assured of Rs 10 lakh cover, these plans could give 10 per cent of the sum assured on completion of three years, 15 per cent after six years and so on.

Endowment plans, on the other hand, pays the entire money only when the policy matures. This includes products that offer the entire premium back and policies that have part assured returns with bonus on policy Maturity.

Endowment Policy Vs Term Insurance

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Term Insurance Vs Endowment Insurance

In today’s market insurance product are bought and sold for saving, investment and tax saving purpose by large no. of people. This is how people are misguided, the actual and correct meaning of the life insurance is to protect your dependent from uncertainties i.e ‘Death’ of earning member of family. When something happens to the earning member of the family, the insurance is supposed to provide financial support to dependents so that they can lead a normal life.

Therefore while you choosing any product of Life Insurance Co, one important question should come to your mind. Whether Sum Assured (S.A.) is enough to satisfy your dependent’s need?

Every individual in his life takes a insurance policy to protect the interest of his family. But, the really important question is that the S.A. justified for dependent’s need?  Just calculate the total premium and total S.A for yourself. Do you really think your dependent will survive whole life with S.A. amount which you have taken?

For Example to explain you: If you have only one dependent and you have taken insurance policy having S.A. of Rs. 10 lacs and if something happens to you then the nominee will get Rs. 10 lacs. If nominee put this money in bank fixed deposit having annual interest of 9%. The nominee will get interest of Rs. 90,000 per year. Please think whether your dependent will be able survive with this sum of money?

Now, question will come to your mind, How do we achieve financial security for our dependent in our absent?

Answer to above question is very simple. You can protect interest of family by increasing S.A. of your policy to Rs. 20 lacs, Rs. 30 lacs, Rs. 50 lacs or a higher sum of money, this call will be individual’s call based o no (s) of dependent.

But again important question arises. If one think of increasing S.A. considering insurance as an investment opportunity and takes any endowment policy, this decision will land him/her to pay very high annual premium i.e for e.g if we consider best selling LIC’s Jeevan Anand policy then annual premium for age of 25 yr individual is Rs. 53,000 (approx).

Do you think it is worth paying such a higher premium?, and Do we have any insurance product for higher S.A. with less premium?

The policy with a higher S.A. and less premium is called TERM INSURANCE POLICY.

What is a term insurance policy?

Term insurance is the purest insurance product at the cheaper policy premium where the nominee gets the sum assured amount at the death during policy year and there are no benefits like bonus or loyalty additions at the survival of life assured at the maturity. The beauty of this product is the high S.A. with much lesser burden of premium amount as compared to any endowment policy.

We are going to demonstrate how does a term insurance is better as compare with a popular endowment scheme. The analysis below also shows you how keeping insurance and investment separate gives better returns.

Scenario 1

You buy LIC Jeevan Mitra Endowment policy with following specifications:

Age of the policy bearer: 25 years

Term: 15 years

Annual premium: Rs 69,829

Sum assured Rs 10,00,000

Total premium paid over 15 years: Rs 10,47,435

Amount you get if you outlive the policy term after 15 years: 16,00,000 (it includes sum assured of 10 lacs and annual bonus of Rs 40,000 per year for 15 years)

 

Scenario 2

You buy LIC Anmol Jeevan Term policy with following specifications:

Age of the policy bearer: 25 years

Term: 15 years

Annual premium: Rs 2,356

Sum assured Rs 10,00,000

Total premium paid over 15 years: Rs 35,340

Suppose the person puts the difference of Rs 67,473 (69,829 - 2,356) in secure and guaranteed return product PPF (Public Provident Fund) with a public sector bank every year.

Amount you get from the insurance policy = 0

The amount you will get from the safe PPF = Rs 20,93,063 (approx)

 

If you invest this amount in an equity linked product for 15 years the returns will be even better (But this again depends on risk taking capacity of individual).

 

What it tells you is that mixing insurance and investment is not a wise thing to do. You can do much better by separating the two as shown in the example above. Of course no insurance agent will advise you to do this since it’s a question of their livelihood. You have to ask hard questions and do your own analysis.

 

Conclusion

I am not suggesting you to have term insurance with PPF account instead of endowment policy as explained above. But, I strongly recommend you to have term insurance policy for your dependent. You should always take insurance for others not for yourself.

 

Note: Kindly share with others if information is found to be usefull.

Endowment vs Money Back Policy

 

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LIC Online Purchase Option - JEEVAN AKSHAY VI, Its Pension Policy

Pension Plans

Pension Plans are Individual Plans that gaze into your future and foresee financial stability during your old age. These policies are most suited for senior citizens and those planning a secure future, so that you never give up on the best things in life.

You ‘ve waited long enough to enjoy this moment – LIChas introduced new pension policy JEEVAN AKSHAY – VI. This policy is now available online at www.licindia.in. Now we shall be discussing its features and benefites :-

Features

Introduction:

It is an Immediate Annuity plan, which can be purchased by paying a lump sum amount. The plan provides for annuity payments of a stated amount throughout the life time of the annuitant. Various options are available for the type and mode of payment of annuities.

Options Available:

The following options are available under the plan

1.     Type of Annuity:

1.     Annuity payable for life at a uniform rate.

2.     Annuity payable for 5, 10, 15 or 20 years certain and thereafter as long as the annuitant is alive.

3.     Annuity for life with return of purchase price on death of the annuitant.

4.     Annuity payable for life increasing at a simple rate of 3% p.a.

5.     Annuity for life with a provision of 50% of the annuity payable to spouse during his/her lifetime on death of the annuitant.

6.     Annuity for life with a provision of 100% of the annuity payable to spouse during his/her lifetime on death of the annuitant.

7.     Annuity for life with a provision of 100% of the annuity payable to spouse during his/ her life time on death of annuitant. The purchase price will be returned on the death of last survivor.

2.     You may choose any one. Once chosen, the option cannot be altered.

Mode:

• Annuity may be paid either at monthly, quarterly, half yearly or yearly intervals. You may opt any mode of payment of Annuity..

Annuity Rate

Amount of annuity payable at yearly intervals which can be purchased for Rs. 1 lakh under different options is as under:

Age last birthday	Yearly annuity amount under option
	( i )	( ii ) (15 years certain)	( iii )	( iv )	( v )	( vi )	(vii)
30	7190	7160	6890	5250	7080	6970	6860
40	7510	7440	6930	5610	7310	7120	6890
50	8140	7950	7000	6280	7760	7420	6930
60	9350	8790	7110	7530	8640	8030	7010
70	12080	9830	7260	10220	10560	9370	7130
80	17880	10440	7480	15890	14600	12340	7290

Incentives for high purchase price

If your purchase price is Rs. 2.50 lakh or more, you will receive higher amount of annuity due to available incentives. In addition of this, for policies sold online, a rebate of 1% by way of increase in the annuity rate shall also be available.

Benefits:

The amount of annuity is assured throughout life of the annuitant.

What happens if the annuitant dies?

If the annuitant dies :

1.     Under option (i) annuity ceases.

2.     Under option (ii)

3.     On death during the guaranteed period - annuity is paid to the nominee till the end  of the guaranteed period after which the same ceases.

4.     On death after the guaranteed period - annuity ceases.

5.     Under option (iii) annuity ceases and the purchase price is paid to the nominee.

6.     Under option (iv) annuity ceases.

7.     Under option (v) annuity ceases and 50% of the annuity is payable to the surviving named spouse during his/her life time. If the spouse predeceases the annuitant, the annuity ceases.

8.     Under option (vi) annuity ceases and full annuity is payable to the surviving named spouse during his/her life time. If the spouse predeceases the annuitant, the annuity ceases.

9.       Under option (vii) annuity ceases. Full annuity is payable to the surviving named spouse during his/ her life time and purchase price is paid to the nominee after the death of the spouse. If the spouse predeceases the annuitant, the annuity ceases and purchase price will be paid to the nominee.

When first instalment of annuity payable:

First instalment of annuity is payable after one month, three months, six months or one year from the date of purchase of annuity depending on the mode chosen is monthly, quarterly, half yearly or yearly respectively.

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Precaution to be taken on Making a Smart Property Deal

Property is an asset that is bought as well as sold with due care. Taking property decisions is not an easy task especially when the Real Estate Market suffers a lot of ups and downs. Whether you are a buyer or a seller of property it is imperative for you to act smartly while dealing in property matters.

While selecting property following question should come in mind of the people engaged in the Real Estate:

• Is the time right to buy or sell property?
• Is the location perfect?
• Will the price of the property hike in the near future?
• Should I wait for some more time? etc.

The list of confusion and questions that popup in the mind is never-ending. So, how to deal with it, what steps should you ensure to clear up these dilemmas.

We present you with some useful tips that will assist you in making a smart property deal.

1.       Carry out a thorough market research and carefully examine the growth as well as depression in the economy. The economy conditions directly influences the property markets. In times of high property rates it is always better to sell whereas depression time is the buying time.

2.        Increasing and decreasing interest rates of home loans in India should also be taken care of.

3.       If you have a property that is solely for investment basis then it is always advised to hold it for few years.

4.       The legal issues related to the property should be carefully checked.

5.        Also, the property and broker agreements should be transparent enough.

6.        There are numerous banks and finance companies that offer loans so you must explore different options before opting for one.

7.        For those investing in developer projects, credibility of the developer should be considered: actual location, construction time line, amenities provided, etc. must be kept track of.

Assistance of a Real Estate Agent can be taken in order to analyze the Real Estate Market situations and choosing the right location. Thus following the above tips shall certainly help you enter an appropriate and smart property deal.

Note: The best way to enquire for a property and reputation of builder in internet which is readily available.  

Income Tax Exemption on housing loan

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Foreign Direct Investment (FDI)

Introduction

As the world turned to a global village, India leaped ahead of its Peer Countries due to its several investment opportunities, huge growth potential and favorable business environment and become hub of Foreign Investment. The steady growth of foreign investment in the Country since the past few years has become one of the pivotal factors in determining the pace of growth of Indian Economy. The foreign Investment in India is not only a growth driver for India Inc. but it also it plays a vital role in granting confidence and trustworthiness to the present as well as potential stakeholders of the organization besides earning International repute and recognition for the country. Infusion of foreign funds in the veins of Indian Economy has largely stimulated the growth of Indian Economy and with the government further liberalizing and streamlining the Foreign Investment policies and procedures, is hopefully supposed to play a crucial role even for the times to come

FDI Policy

FDI is primarily governed by the Foreign Exchange Management Act, 1999 (FEMA) which lays down the broad framework under which Government of India through various regulatory bodies create, review and regulate the detailed provisions. The Government of India through Department of Industrial Policy & Promotion (DIPP) releases two comprehensive FDI policy in an year vide its Circulars which are effective from April 1 and October 1 of each year, the said FDI Policy combines all the prior policies/regulations relating to FDI in India in a single document . Every consolidated FDI policy circular, substitutes the last policy circular.

Modes of Foreign Investment in the Company

‘Foreign investment’ refers to an investment in an enterprise by a Non-Resident whether it involves new capital or re-investment of earnings. Foreign investment is of two kinds – (i) Foreign Direct Investment (FDI) and (ii) Foreign Portfolio Investment. Any non-resident entity (other than a citizen of Pakistan or an entity incorporated in Pakistan) can invest in India, subject to the FDI Policy. The government of India has also specified the class of entities in which the Foreign Investment can be made and with respect to each set of entities there are separate guidelines and criteria to be followed. Indian Company being one of the recognized entities for receiving Foreign Investment, FDI in such entities flows under two routes – (a) Automatic Route and (b) Approval Route.

Automatic Route

All Foreign Direct Investment proposals which do not require the approval of Foreign Investment Promotion Board are said to be investment under Automatic Route. This route is available to all sectors or activities that do not have a “sector cap” i.e. where 100% foreign ownership is permitted or where investment up to sectoral cap is allowed without approval.

Approval Route

All Foreign Direct Investment proposals, wherein the proposed investment in Indian Company is above the prescribed sector caps or where the proposed investment is in such sectors where investment is allowed only pursuant to approval, falls under the approval route.

Instruments for receiving Foreign Investment

The investment as aforesaid may be made in the Indian companies in any of the following modes:

• equity shares,
• fully, compulsorily and mandatorily convertible debentures and

fully, compulsorily and mandatorily convertible preference shares

In case any Unlisted Company issues any of the aforesaid instrument, than their pricing shall be determined by Discounted Cash Flow (DCF) method of valuation and in case of any listed company, according to method provided in SEBI (ICDR) Regulations. In case of convertible instrument the price or conversion formula of such instruments should be determined upfront at the time of their issuance. The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such instruments, in accordance with the valuation method as provided aforesaid.

Inwards remittance through the issuance of Depository Receipts and Foreign Currency Convertible Bonds (FCCB) are also counted towards FDI.

Sectoral caps with reference to Foreign Investment

The government of India has, for the purpose of ensuring maximum economic growth and at the same time maintaining National interest divided the business activities into three different sectors. Each of the sectors has specified industries and procedures under its purview and specifies conditions to be followed with a view to infuse Foreign Investment in such specific industry of the sector. Such Sectors includes:-

1. Prohibited Sectors – Sectors wherein Foreign Investment is strictly prohibited i.e wherein no application for approval can be made.
2. Restricted Sector – Sectors wherein Foreign Investment is permitted under automatic approval up to a specified percentage and for any increase beyond such specified percentage, approvals is required or per se there are certain sectors wherein foreign investment is allowed only pursuant to approvals.

100% Automatic Sectors – Sectors under Automatic Route means such sectors wherein 100% investment is allowed without seeking any governmental approvals.

Foreign Investment – Overview of implications involved

As and when the question regarding infusion of Foreign Funds arise, the first criteria to be verified is regarding which sectors such industry falls. In case of Automatic Route, the non-resident investor or the Indian company does not require any approval from Governmental authority, whereas, under the Restricted Sectors, prior approval of the Government of India through Foreign Investment Promotion Board (FIPB), Department of Economic Affairs (DEA), Ministry of Finance may be required. With specific reference to certain specified sectors, Foreign Equity should be infused after seeking approval and abiding by the policies & regulations of concerned authority as well such as SEBI, TRAI, IRDA, MIB etc.

Cases requiring approval

For proposals involving FDI under the Government route the following approval levels operate within the Foreign Investment Promotion Board i.e. though the requisite application would be filed by the applicant to the FIPB, it would be disposed of following the specified manner:-

While granting approval to any application filed with the FIPB the FIPB takes into consideration and scrutinize various important aspects therein a brief flow chart of the procedure followed therein is specified below:-

The FIPB is instructed not to change or impose additional conditions in any specific letter of approval pursuant to grant of such letter of approval to any Non-resident investor, Guidelines for e-filing of applications, filing of amendment applications and instructions to applicants are available at FIPB’s website (http://finmin.nic.in/ ) and (http://www.fipbindia.com ).

Procedural implications with reference to Foreign Investment

In seeking foreign Investment under automatic route or under approval route post acquiring requisite approval, the following issues must be taken care of:-

• The Indian company receiving foreign investment should report the details of the amount of consideration to the Regional Office of concerned RBI through its Category 1 Authorized Dealer not later than 30 days from the date of receipt. Such report should be accompanied with copy of FIRC/s evidencing the receipt of the remittance and the KYC report on the non-resident investor from the overseas bank remitting the amount, upon submission of which a Unique Identification Number (UIN) for the amount reported would be allotted to the entity.
• The Capital Instrument must be issued within 180 days of the date of receipt of the inward remittance or by debit to the NRE/FCNR (B) account of the non-resident investor. In case the same is not done within the specified time frame the amount should be refunded to such non-resident shareholder.
• The Capital Instrument must be priced in accordance with the valuation methodology provided.
• After issue of shares (including shares issued on rights basis and shares issued under ESOP)/fully, mandatorily & compulsorily convertible debentures / fully, mandatorily & compulsorily convertible preference shares, the Indian company has to file Form FC-GPR, to the Regional Office of concerned RBI through its Category 1 Authorized Dealer not later than 30 days from the date of issue of Shares along with requisite annexure.
• Separate forms are prescribed for reporting of non cash issuance and FCCB/ADR/GDR issues.

Conclusion

One of the main element which could lead to the improvement in the economic condition of the Country is the increase in the inflow of foreign investment. Towards such initiative the Government has time and again being simplifying procedural aspects and making its guidelines user friendly whether such user be a Foreign investor or the investee company seeking any approval. Though such steps are steadily taken by the Government however it’s essential that a steady flow of such policies is maintained so that foreign investment for future also continues to rise.

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