India-Canada Standoffs: What Are The Popular Investment Options Available For Canadian NRIs In India?

The relationship between India and Canada has soured over the past few days. From immediate redundancy of diplomats to visas tossed away, both the Indian and the Canadian governments are in an intense faceoff. Although India has temporarily suspended visa services to Canadian citizens over the diplomatic tension, there are still no steps taken against Canadian investment in India. Irrespective of the feud, the Indian economy and market is an attractive investment hub for foreign investors including NRIs. And Canadian NRIs have a host of investment options in the country.

To invest in India, NRIs will have to open a Non-Resident External (NRE) Account/ or a Non-Resident Ordinary (NRO) Account. The process is hassle-free and easy. These accounts allow Canadian NRIs to transfer their transfer foreign earnings into the Indian accounts in Indian currency.

Here are the investment options available for Canadian NRIs in India:

These investment options are apart from equity markets where foreign investors like FDIs, FPIs, and FIIs significantly invests.

1. Mutual Funds:

As per AMFI, a mutual fund is a collective investment vehicle that collects & pools money from several investors and invests the same in equities, bonds, government securities, and money market instruments. The money collected in a mutual fund scheme is invested by professional fund managers in stocks and bonds etc. in line with a scheme's investment objective. The income/gains generated from this collective investment scheme are distributed proportionately amongst the investors, after deducting applicable expenses and levies, by calculating a scheme's "Net Asset Value" or NAV. In return, mutual fund charges a small fee.

On HDFC Bank's website, it is mentioned that the first step in applying for a mutual fund is to be KYC compliant. This process helps establish your identity. The documents required include proof of identity and address, along with a FATCA (Foreign Account Tax Compliant Act) confirmation.

Not every Asset Management Company (AMC) supports investments from a Canadian NRI. HDFC Bank has simplified the procedure of applying for mutual funds. You can even apply online to get started in no time at all. The NRE and NRO accounts can be used to disburse funds and receive interest and dividends.

2. Offshore Investments:

Investors in offshore assets can range from equity, and fixed income bonds to commodities. Some of the advantages of offshore funds are that they offer the potential for diversification, enable access to international markets, and enhance the opportunity to capture growth in specific countries or sectors.

3. Real Estate:

Currently, India's real estate market is at a booming stage. As per IBEF data, during the financial year 2022-23, the Indian residential property market registered an all-time high sales of Rs 3.47 lakh crore (US$ 42 billion), marking a robust 48% year-on-year increase. The volume of sales also exhibited a strong growth trajectory, with a 36% rise to 379,095 units sold. Also, IBEF's data stated real estate sector in India is expected to reach $ 1 trillion in market size by 2030, up from $ 200 billion in 2021 and contribute 13% to the country's GDP by 2025.

Many NRIs have been purchasing houses in India and earning rental money. NRIs have a host of options for real estate investment such as under-construction properties, developed plots, villas and apartments among others. However, it needs to be noted that, NRIs cannot buy agricultural land and plantations in the country.

4. Fixed Deposits:

Fixed deposits are generally packed with exceptional interest rates, are risk-free and offer guaranteed returns. It is not just famous among Indian residents, but also NRIs who do not desire to take market-related risks can earn accumulated earnings on FDs as well in India. Banks offer interest rates in the range of 4% to 8% to NRIs, however, they vary from tenure to tenure.

NRIs can begin their FDs by opening FCNR, NRO, or NRE accounts. As per HDFC Bank's website, an NRE Fixed Deposit is exempt from taxation, but an NRO Fixed Deposit is liable for the NRI tax due. Interest earned on NRE Fixed Deposit is exempt from tax in India but there is TDS applicable on interest earned on NRO Fixed deposit.

5. Foreign currency non-resident deposits (FCNR):

FCNR account is meant for those who wish to hold a deposit in a foreign currency of their choice. Presently FCNR(B) deposits can be placed in 6 currencies viz US dollar (USD), Pound sterling (GBP), Japanese Yen (JPY), Euro (EURO), Australian Dollar(AUD) & Canadian Dollar (CAD). The major advantage of this account is that the depositor need not worry about the Exchange rate fluctuations.

NRIs can choose between a tenure of 1 year to 5 years. Interest on FCNR deposits varies currency-wise. Interest and the principal are both freely and fully repatriable, as per Union Bank of India's website. These FCNR accounts also offer loan facilities. These term deposits are also tax-free.

6. National Pension System (NPS):

NPS is an important milestone in the development of a sustainable and efficient voluntary defined contribution pension system in India.

NRIs are allowed to open a NPS account. Among the salient features of the NPS scheme is that it offers a portfolio of adequately diversified financial securities. Also, it has a judicious mix of investment instruments and asset classes like Equity (E), Corporate Bonds (C) and /or Government Securities (G) ensuring minimal impact on the returns on subscribers' contributions even if there is a market downturn.

NRIs have the choice to decide asset classes in which the contributed funds are to be invested and their respective proportions. Also, the default option under NPS, management of investment of funds is done automatically based on the age profile of the subscriber.

For NRIs, an additional deduction for investment up to Rs 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B) -- which is over and above the deduction of Rs 1.5 lakh available under section 80C of Income Tax Act. 1961.

7. ULIPs (United Linked Insurance Plans):

Over the years, investment in ULIPs has gained popularity among NRIs which offer dual investment benefits, and a life cover to protect your finances for your long-term goals. Apart from this, ULIPs are also packed with tax benefits. Under ULIPs, depending upon the proportion ratio, a part of the funds are invested in life insurance and the rest of them are invested in mutual funds of your choice.

All Indian citizens and NRIs can get ULIP tax exemption up to Rs 1.5 lakh on the premiums paid for the ULIP policy under section 80C of the IT Act.

It will be keenly watched whether the feud between India and Canada will take a toll on Canadian NRIs.

It all began with Canada's Prime Minister Justin Trudeau who took everyone even both countries' allies by surprise, as he blamed India for the killing of Canadian national, Hardeep Singh Nijjar who was declared a terrorist as the head of the Khalistani Tiger Force (KTF) in India. Since then, concerns over billions of dollars worth of trade and investment between the two countries have escalated, while fear among NRIs in Canada and also in parts of the US has also heightened.

India has denied the allegations related to the Khalistani separatist leader, while the Canadian Prime Minister remains unfazed without providing substantial evidence to back his controversial move. Recently, Trudeau who attended the United Nations Headquarters for the high-level 78th session of the UN General Assembly refused to respond to PTI's question about India rejecting allegations made by him in Parliament.

Disclaimer:

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.