NRI Investment in India: The Options, and Where Mumbai Fits

Investing in India begins with the objective.

Clients abroad are drawn to India for reasons that seldom change: the scale of the economy, the depth of its wealth, and ties of family and business that remain. The search for a way in tends to start with the instrument. It is better started with the objective. Income, growth, diversification, a home for the family and a legacy each point to a different holding, and each sets its own horizon.

NRI investment options in India.

An NRI has more routes into India than most people expect. Each does a different job, and none is best for everyone. The table sets them side by side. The notes beneath say what each is for.

Bank deposits.

Deposits give capital a steady place to wait. They are simple to hold and easy to understand, and they suit a reserve, or money that may be needed soon. They are not built to grow capital over many years.

FCNR deposits.

A Foreign Currency Non-Resident (Bank) deposit is a term deposit that an NRI holds with an Indian bank in a foreign currency. The sum returned is the sum deposited, in the same currency, so the depositor carries no rupee risk during the term. It suits a reserve, or money waiting for a decision, and it is not built for growth. The FCNR account guide sets out how it works.

Mutual funds.

Funds pool the money of many investors and are run by professional managers. They hold Indian shares, bonds or a mix of the two. They suit those who want a share in Indian markets without choosing individual securities, and who accept that values rise and fall.

Listed shares.

Shares give direct ownership of Indian companies through the stock exchange. They offer the widest choice and the most control, and they ask for the most attention. Prices move every day, so the horizon should be long enough to look through the swings.

Bonds and government securities.

A bond is a loan to the government or to a company, repaid with regular interest. Bonds suit those who want income and a defined end date. The standing of the borrower matters more than the label on the bond.

Managed and alternative funds.

Portfolio management services and alternative funds run larger sums on a narrower mandate, such as private equity, credit or a focused equity strategy. They suit larger allocations. The mandate, the manager’s record and the terms are read with care before capital is committed.

Gold.

Gold is held as metal, as coins or through funds. It is bought to preserve capital, not to earn income, and it tends to be kept for the long term as a counterweight to other holdings.

Retirement schemes.

These schemes are built for the years after work. They suit those who plan to return to India, or to draw an income there later, and they reward patience, since the capital is meant to stay in place.

Real estate.

Real estate is the one option on this list that can be lived in. In India it is held directly, either as a residence or as a commercial asset, and Mumbai is among the places where the most sought-after of both are found. It is also slower to sell than most options here, and its value can fall as well as rise. The sections below take it further.

How to choose among them.

Four questions settle most of the choice. What is the capital for: income, growth, a home for the family or a legacy? How long can it stay invested? How quickly might it be needed? In which currency will it be spent?

Money that may be needed soon belongs in options that can be turned into cash easily. Money meant for the long term can be held in assets that are slower to move and slower to be repriced, such as shares or real estate. Most NRIs hold several options, in proportions that change as their circumstances do. Every option carries risk: values can fall as well as rise, and past results are no guide to future ones.

Why real estate belongs in an NRI portfolio.

Real estate is one holding among many. Its place rests on qualities that few other assets offer together. It is held directly. It can be used by the family as well as owned. It is not repriced by a screen every second, which suits capital meant to be kept rather than traded. Against this, it is slower to sell than most other holdings, and its value can fall as well as rise. For an NRI whose wealth sits mostly in other currencies and other markets, a holding in India also adds a second centre of gravity to the portfolio.

Why Mumbai for NRI real estate investment.

Mumbai is India’s financial capital. Corporate headquarters, financial institutions and a deep base of private wealth share one city, and that concentration supports demand for residences and for commercial space alike. Space is limited by the sea. Sea-facing residences and Grade A offices at established addresses are among the most sought after, and the demand for them has been built over many years.

Residence or commercial asset.

Two kinds of holding answer most briefs. A luxury residence, sea-facing or at an established address, serves a family that wishes to hold a home and to use it. A commercial asset, whether a Grade A office, high-street retail or a showroom, is judged as an investment: its entry basis, the covenant of the tenant, the income it carries and the way out. Some NRIs hold both, in proportions that change as their circumstances do.

The horizon decides the choice.

A holding meant for five years is chosen differently from one meant for a generation. The shorter horizon favours liquidity and a clear exit; the longer favours the established address, where demand has been built over many years. Name the horizon first, and the choice narrows of its own accord.

Questions on NRI investment in India.