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Investment opportunities for NRI’s in INDIA:

Direct Investment:

NRIs are permitted to make direct investment in partnership/ proprietorship concerns in India as also by way of subscription to shares/ debentures of Indian companies. Investments made will either be on repatriation or on non repatriation basis.

  1. Investments Without Repatriation Benefits:

    NRIs who undertake not to seek at any time repatriation of the capital invested in India and the income earned thereon are permitted to invest on non repatriation basis. Points that needs to noted while investing without Repatriation benefits:

    • The income earned on these investments as are required to be credited to the Ordinary Non Resident Rupee (NRO) account of the investor.
    • Reserve Bank would, however, permit repatriation of income / interest earned only after payment of applicable taxes.
    • The amount invested should be remitted from abroad through normal banking channels or by transfer of funds held in investor’s bank accounts in India (NRE/NRO/FCNR accounts)
    • The concern or the NRI does not engage in any agricultural/ plantation activity or real estate with a view to earning profit or income there from.
    • It is not necessary for such partnership/ proprietorship/Indian Companies in India to obtain permission of Reserve Bank for receiving capital contribution from NRIs provided the above conditions are satisfied.
    • The firm/Company should however submit the declaration to the concerned Regional Office or the Reserve Bank in whose jurisdiction it is situated within a specified period of 30days/90 days as the case may be, from the receipt of investment.
    • In case of investment in non-convertible debentures of Indian Company, the rate of interest shall not exceed prime lending rate of State Bank of India, plus 300 basis points. The minimum period for redemption of such NCDs should be three years.

    • Categories of Investments that are available under the head ‘Investments without Repatriation benefits’ are:

  2. Investment with Repatriation Benefits.

    NRIs are also permitted to make investments in Indian firms/ companies with repatriation benefits i.e. capital invested and dividend/income earned thereon are allowed to be repatriated outside India. Since the issuing companies would be obtaining the necessary permissions from RBI, the NRI investor does not have to obtain RBI’s permission for investing in such shares/debentures.

    The categories of Investments available are:

    1. Investment in New Issues of Indian Companies under 24% Scheme:
      • NRIs are permitted to subscribe to new issue of equity shares/convertible debentures of existing or new companies (both private and public limited) engaged/proposing to engage in any activity including finance, hire purchase, leasing, trading or other services etc. (except agricultural/plantation activities and real estate business).
      • NRI’s can get repatriation benefits upto 24% of the new issue of the concerned Indian company.
      • The issuing company must file a declaration in Form ISD together with the required documents with the concerned Regional Office is situated, within 30 days from the date of issue of shares / convertible debentures.
    2. Investment in New Issues of Indian Companies under 40% Scheme: NRIs/OCBs are permitted to subscribed to new issues of shares and convertible debentures of any new or existing company under 40% Scheme provided :
      • The issue of equity/preference shares and convertible debentures of NRIs with repatriation facility does not exceed 51 percent of the face value of each new issue of the company concerned.
      • The shares of the company are not listed on any stock exchange
      • The company is engaged in manufacturing activity like industrial and manufacturing units, hotels with 3, 4, or 5 star category, hospitals and diagnostic centers, shipping companies, development of computer software, oil exploration services.
      • Indian companies engaged in the above mentioned activities are allowed to issue shares/debentures to NRIs with repatriation benefits to the extent of 40% of the new issue.
    3. Investment in New Issues of Indian Companies under 100% Scheme: NRIs are permitted to invest in priority industries and in Indian Companies primarily engaged in export trading activity, with full repatriation benefits upto 100% of the new issue of shares. Indian Companies has to file a declaration in Form ISD(R ) together with the required documents with the concerned Regional Office of Reserve Bank, under whose jurisdiction their Registered Office is situated, within 30 days from the date of issue of shares.
    4. d) Investment in Housing and Real Estate Development: NRIs will be permitted to invest upto 100% in the new issue of equity shares/convertible debentures of Indian companies engaged in the following areas:
      • Development of serviced plots and construction of built up residential premises
      • Real estate covering construction of residential and commercial premises including business centers and offices
      • Development of township
      • City and region level urban infrastructure facilities including roads and bridges
      • Manufacturing of building materials
      • Financing of housing development.
      Repatriation of original investment in this case will be permitted by Reserve Bank only after a lock in period of three years from the date of issue of the equity shares/convertible debentures.
    5. Investment in Non-Convertible Debentures of Indian Companies:NRI’s can invest in non-convertible debentures (NCDs) of Indian subject to the following conditions:
      • The amount of subscription should be received by inward remittance from abroad through normal banking channels or by non-resident’s NRE/FCNR account.
      • The rate of interest of such NCDs shall not exceed prime lending rate of State Bank of India, plus 3000 basis points.
      • The company raising funds through NCDs should not be engaged in agricultural/plantation activity, real estate business, trading in transferable development rights (TDRs) or act as Nidhi/Chit Fund Company.
      • The issuer company files with the Regional Office of Reserve Bank, within 30days from the date of receipt of remittance, a report containing the required information and documents as stipulated by the RBI.
    6. f) Investment in Sick Industrial Units: NRIs can undertake revival of sick industrial units by making bulk investment in them either by way of purchase of equity shares from existing shareholders or in the form of subscription of new equity issues of the sick units on the following basis:
      • The bulk investment can be made on private placement basis upto 100% of the equity capital of the sick company
      • Issue/transfer of equity shares should be approved by the existing shareholders of the company through a Special Resolution
      • For the purpose of investment under the scheme, the company should be declared as sick or there should be a rehabilitation programmed approved by the public financial institution/commercial bank or a consortium of banks or by the Board for Industrial and Financial Reconstruction (BIFR)
    7. Investment in the schemes of Domestic Mutual Funds:
      • The mutual fund should comply with the terms and conditions stipulated by the Securities and Exchange Board of India.
      • The amount representing investment should be received by inward remittance through normal banking channels or by NRE/FCNR account.
      • The net amount representing the dividend/interest and maturity proceeds may be remitted through banking channel or credited to NRE/FCNR/NRO account of the non-resident investor
    8. Purchase of shares of Public Sector Enterprises: NRIs can invest in shares of Public Sector Enterprises subject to following conditions:
      • The holding of shares by a NRI, at any time does not exceed 1% of the paid up capital of the PSE concerned
      • The purchase consideration / bid money is received by way of remittance from abroad through normal banking channels or by transfer of funds held in investor’s NRE/FCNR accounts.
      • The application is submitted along with deposit of bid money/purchase consideration at the branch of State Bank of India designated by the Government of India for that purpose in the notice inviting the bids.
    9. Deposits with Companies:
      • NRIs can place funds in fixed deposits with public limited companies in India (including Government undertakings with limited liability) with full repatriation benefits for a period of three years.
      • The total amount of fixed deposits permitted to be accepted will be stipulated by Reserve Bank in individual cases.
      • The application for permission is made by the Indian company through its bankers to the concerned office of Reserve Bank under whose jurisdiction its Head/Registered Office is situated.
      • While granting permission, Reserve Bank will authorize the branch to allow remittance of interest and maturity proceeds of deposits or credit to the depositor’s NRE/FCNR account.
  3. PORTFOLIO INVESTMENT

    NRIs have to obtain prior permission of RBI to acquire shares / debentures of Indian Companies and units of domestic mutual funds on both repatriation and non-repatriation basis through stock exchanges in India. The application for permission is to be submitted to RBI through a designated Bank branch in one of the prescribed forms. RBI approval is valid for a period of 5 years from the date of issue Regulations regarding Portfolio Investment.

    • Portfolio investment in shares/debentures by NRIs are permitted only though designated branches of authorised dealers.
    • Non-resident investors can also authorise Indian residents or stock exchange brokers as their agents in India to purchase/sell shares on their behalf under the schemes but all transactions should be routed through the designated branch of authorised dealer.
    • Investment made by any single NRI/OCB investor in equity/preference shares and convertible debentures of any listed Indian company does not exceed 5% of its total paid-up equity or preference capital
    • Investment in equity shares and convertible debentures will be permitted subject to an overall ceiling of 10 percent of the total paid-up equity capital of the company concerned.
    • The purchase of shares and debentures under the scheme is required to be made at the ruling market price.
    • NRIs intending to invest on non-repatriation basis should submit their applications in Form NRI and Form NRC respectively, through a designated branch of authorized dealer.
    • NRIs intending to invest on non-repatriation basis should submit their applications in Form NRI and Form NRC respectively, through a designated branch of authorized dealer.
    • NRIs/OCBs take delivery of the shares/convertible debentures purchased and give delivery of the shares/convertible debentures sold under the scheme.
  4. Investment in Government Securities, National Plan/Saving Certificates and Units of UTI:
    • NRIs are permitted to invest freely in securities (other than bearer securities) of the Central or any State Government and National Plan/Savings Certificates and Units of UTI by making remittances form abroad or out of funds held in their NRE/FCNR accounts, provided the purchase/subscription is arranged through the authorised dealer maintaining the account.
    • Authorised dealers may also makes such investments on behalf of NRIs out of funds held in their NRO accounts subject to the condition that the funds invested and any income earned thereon will not be eligible for repatriation out of India at any time in future.

FAQ’s

First the NRI has to decide where to invest and on what basis to invest. If he is investing in Non-Repatriation basis then he use funds from NRO/NRE/FCNR accounts, if it is on Reparation basis then he can use funds from NRE/FCNR accounts.
Yes, NRI’s has to take prior permission from RBI to acquire shares/debentures of Indian Companies through stock exchanges.
Investment by single NRI should not exceed 5% of paid up capital. All NRI investment put together cannot exceed 10% of the paid up share capital. This limit of 10% can be raised to 24% by taking permission from RBI.