Details on Investment options for NRIs

The Non Resident External (NRE) Savings Account is meant for Indians residing abroad. It allows you to transfer foreign earnings easily to India.The following are the few important points regarding the NRE account.

  1. NRIs can make portfolio investments in shares and Debentures quoted on the Stock Exchanges in India with full benefits of repatriation of capital and income thereon subject to certain conditions.
  2. NRIs are freely permitted to invest their funds in Government securities or Units of UTI through authorised dealers. Units can also be purchased directly from UTI
  3. Investments in National Savings Certificates can be made by NRIs subject to the terms and conditions applicable to the sale/issue of such certificates.
  4. NRIs are not permitted to invest in bearer securities like Indira Vikas Patra/Kisan Vikas Patra.
  5. Government securities/units can be freely transferred or sold, provided the transfers/sales are arranged through an authorised dealer. Units can, however, be repurchased directly by UTI.
  6. If Government securities/Units/National Savings Certificates were purchased out of funds remitted from abroad or out of NRE/FCNR accounts, sale/maturity proceeds can be repatriated. Sale/maturity proceeds of securities purchased out of funds in NRO accounts can only be credited to NRO account s and cannot be remitted abroad. Interest earned during the financial year 1994-95 and onwards can, however, be remitted to the extent permitted by Reserve Bank.
  7. Permission of Reserve Bank is not required for making investments in new issues of Indian companies on non-repatriation basis. Indian companies have been granted general permission to accept investments on non-repatriation basis, in shares/convertible debentures by way of new/rights/bonus issue provided the investee company does not carry on agricultural/plantation activity and/or real estate business (excluding real estate development i.e. development of property and construction of houses).
  8. NRIs can make investments in non-convertible debentures of Indian companies.
  9. NRIs can purchase existing shares/debentures of Indian companies by private arrangement. Reserve Bank permits NRIs, on application in form FNC 7, to purchase shares/debentures of existing Indian companies on non-repatriation basis. An undertaking about non-repatriation is to be given in form NRU.
  10. Income/interest accruing during the financial year 1994-95 and onwards on bank deposits and investments held by NRIs with non-repatriation benefits will be eligible for repatriation as under: (a) Up to U.S. $ 1,000 or its equivalent in full and one-third of the balance income earned during the financial year 1994-95; (b) Up to U.S. $ 1,000 or its equivalent in full and two-third of the balance income earned during the financial year 1995-96; (c) The entire income earned during the financial year 1996-97 and onwards. Note : The investment/principal amount of deposits made/held on non-repatriation basis will, however, not be allowed to be repatriated abroad.
  11. Authorised dealer have been permitted to grant loans/overdrafts abroad to NRIs through their overseas branches and correspondents against collateral of the shares/debentures of Indian companies held by them, provided the concerned shares/debentures were acquired on repatriation basis.
  12. Reserve Bank approval is valid for a period of five years from the date of issue. This can be renewed further by making a request by means of a simple letter.
  13. There is an overall ceiling of 5% of paid-up share capital of the company/paid-up value of each series of convertible debentures for purchase by NRIs/OCBs (including shares/debentures acquired by FIIs). The overall ceiling can be raised to 24% if the company concerned passes a resolution to that effect in its general body meeting. Individually, NRIs/OCBs can make investment upto 1% of the paid-up share capital/each series of convertible debentures. However, there is no ceiling on investment in domestic Mutual Funds.
  14. NRIs can keep deposits with public limited companies in India for a minimum period of three years subject to certain ceilings/conditions. Application for the purpose is required to be made by the company receiving the deposits through an authorised dealer.
  15. Permission for placement of funds in fixed deposits with firms/companies in India is granted by Reserve Bank on application by the depositor or the deposit accepting firm/company, on non-repatriation basis, subject to certain ceilings/conditions.
  16. NRIs are permitted to invest in Commercial Paper (CP) issued by Indian companies. General permission has been granted by Reserve Bank subject to the conditions that the amount invested will not be repatriated outside India and the CP will not be transferable.
  17. Permission of Reserve Bank is not required for sale/transfer of Government securities/units? Authorised dealers have been permitted to undertake sale of Government securities/units on behalf of NRIs without prior approval of Reserve Bank. Sale/maturity proceeds can be remitted abroad if the original investment was made out of funds remitted from abroad or funds in NRE/FCNR accounts. Otherwise, they will have to be credited to NRO account of the holder.
  18. Permission of Reserve Bank is not required by NRIs for sale/transfer of shares/debentures of Indian companies to other NRIs. Transfer of shares/ debentures of Indian companies by NRIs to other non-residents does not require permission of Reserve Bank. However, the transferee NRI would need permission for purchase of such shares for which an application is required to be made to Reserve Bank in form FNC 7.
  19. General exemption has been granted by Reserve Bank for transfer/sale of shares/debentures/bonds by NRIs/OCBs through stock exchanges if such transfers are made in favour of an Indian citizen or a person of Indian origin or a company incorporated in India and sale proceeds thereof are credited to NRO account.
  20. In the case of shares/debentures/bonds acquired by NRIs through stock exchanges under the Portfolio Investment Scheme, general exemption has been granted for transfer through stock exchanges provided the sale is arranged through the same designated b ranch through whom they were purchased. In other cases, applications for necessary permission are required to be made to Reserve Bank in form TS 4.
  21. NRIs are required to submit application in form TS 1 to Reserve Bank for sale/transfer of shares/debentures to residents by private arrangements.
  22. Reserve Bank has granted general permission to NRIs to transfer, by way of gift, shares, bonds and debentures of Indian companies held by them with Reserve Bank's permission to their resident close relative/s.
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