An NRI’s guide to investments and portfolio management in India

Leaving India and moving to a different country often brings a mix of challenges and joys. One such aspect of becoming a Non-resident Indian (NRI) is learning how to handle your existing investments in India from overseas.

This article covers what portfolio management means for someone moving abroad and how to handle common investment avenues in India even after becoming an NRI. From mutual funds to the National Pension Scheme (NPS), Public Provident Funds (PPF), and stocks—we cover it all.

What is portfolio management for NRIs?
 

So, what exactly is meant by portfolio management for new NRIs? Essentially, it is the strategic allocation and handling of investments to achieve specific financial goals while complying with Indian laws.

When you’re an NRI with investments in India, looking after your portfolio can feel troubling very easily. After all, the moment you leave the country and settle abroad, you must learn to navigate regulatory complexities, tax implications, and the need for remote monitoring.

This is why many NRIs also prefer opting for portfolio management services to maximise the returns on their investments in India. However, strategic investment management can also be achieved on your own. All it requires is a proper understanding of market movements, regulatory nuances, and tax implications.

Investment options and what happens to them once you move abroad
 

Many NRIs might have existing investments such as mutual funds, PPF and NPS in India. Let’s explore how you can manage these investment avenues once you move abroad.

1. Mutual funds: A versatile investment opportunity
 

Mutual funds are one of the most accessible investment avenues in India.

Depending on your risk appetite, you may opt for equity, debt, or hybrid funds. While riskier equity funds offer higher potential returns, debt funds are suitable for investors interested in more stability. Hybrid funds provide a balance between the two.

Some important points to note when managing your mutual fund investments in India from abroad are –

a. Staying invested – New NRIs need to inform their fund house regarding the change in their country of residence and update their KYC (Know Your Customer) information with their overseas address.

You must also convert your resident savings account to an NRO (Non-Resident Ordinary) or NRE (Non-Resident External) account to continue staying invested. All future mutual fund transactions, such as SIPs (Systematic Investment Plans) or redemptions, must be linked to these accounts.

b. Tax implications – Since NRIs are subject to TDS on mutual fund capital gains, informing your fund provider is important to ensure compliance. Moreover, you are required to submit a Foreign Account Tax Compliance Act (FATCA) declaration to disclose your details regarding your overseas tax residency.

Capital gains from mutual funds are taxed based on the holding period. In equity funds, short-term capital gains (held for less than a year) are taxed at 20%, while long-term gains (held for over a year) above ₹1.25 lakh are taxed at 12.5%. If your new country of residence has a Double Tax Avoidance Agreement (DTAA) with India, you might be eligible for relief on double taxation. This can reduce your tax burden.

c. Redemption and repatriation – Redeeming mutual fund units is a hassle-free process, and funds in NRE accounts can be repatriated without complexities. IDFC FIRST Bank NRI Banking Services ensure compliance with regulations, making cross-border transactions smoother.

2. National Pension Scheme (NPS): Retirement planning simplified
 

The National Pension Scheme is an excellent investment option for long-term retirement planning. Indians aged 18 to 60 years can open an NPS account using their PAN or Aadhaar Card and invest in NPS to benefit from market-linked returns.

NPS offers a well-structured retirement savings plan, with contributions invested in government securities, equities, and corporate bonds. The investments are categorised into tier 1 (mandatory) and tier 2 (optional and flexible).

Here are some important points to note regarding what happens to your NPS investment once you move abroad –

a. Staying invested – Your NPS account remains active even when you become an NRI. However, you must notify the Central Recordkeeping Agency (CRA) regarding the change in your residential status. Don't forget to update your KYC details with your international address and proof of residence. Moreover, your resident savings account needs to be converted into an NRO or NRE account from which you contribute to your NPS investment.

b. Tax benefits – As a new NRI, the tax benefits on your NPS investment continue to remain the same. Contributions of up to ₹1.5 lakh qualify for tax deductions up to ₹1.5 lakh under Section 80C of the Income Tax Act, and an additional ₹50,000 deduction is available under Section 80CCD (1B).

c. Withdrawal procedure – Upon reaching 60 years, up to 60% of the corpus can be withdrawn tax-free. The remaining 40% must be used to purchase an annuity.

3. Public provident fund (PPF): Secure and tax-free savings
 

A Public Provident Fund (PPF) is a long-term savings scheme that offers attractive, tax-free returns. With a tenure of 15 years, its tax benefits fall under the Exempt-Exempt-Exempt (EEE) framework, meaning that the investment, interest earned, and withdrawals are all tax-free. In a year, you can contribute between ₹500 to ₹1.5 lakh to your PPF account.

Some important aspects of managing your PPF investment as an NRI include –

a. Staying invested – As an NRI, you cannot open a PPF account after moving abroad, but you can continue to maintain your existing one. Notify your bank or post office holding immediately about the change in your residential status and provide proof of your overseas address. You must also link your PPF account to an NRO account to keep contributing to it. Do note that contributions from an NRE account are not permitted.

b. Tax advantages – Investments, returns, and withdrawals from PPF are completely tax-exempt under Section 80C. However, income from global investments may be taxable in your country of residence, depending on local laws, regulations, and DTAA agreements.

c. Withdrawal and maturity – Partial withdrawals from your PPF account are allowed from the seventh year onwards. Subject to RBI regulations, the entire corpus can be repatriated upon maturity.

4. Stock investments: Exposure to equities through authorised platforms
 

Staying invested in Indian stocks allows NRIs to participate directly in the country's economic growth. However, it requires a thorough understanding of the market and a good strategy. Key points to note are –

a. Staying invested – Before moving abroad and becoming an NRI, you must close your resident Demat account as per RBI regulations. Instead, NRIs must open a Portfolio Investment Scheme (PIS) account linked to their NRE/NRO accounts to transfer their existing holdings and participate through authorised platforms. Moreover, you need to notify your depository participant as well regarding your NRI status and submit proof of your overseas address to update your KYC details.

b. Tax considerations – Short-term gains (less than one year) are taxed at 20%, while long-term gains (beyond one year) are taxed at 12.5% for profits over ₹1.25 lakh.

Practical tips for effective investment portfolio management
 

Understanding the benefits of portfolio management ensures that your Indian investments continue to grow even from afar. However, learning how to maintain your existing investments is only the first step.

When managing investments in India as an NRI, some practical tips to keep in mind are –

1. Regular monitoring – Make it a habit to review your investments to ensure they align with your financial goals. For instance, you can leverage the MF tools offered by IDFC FIRST Bank for up-to-date insights on your mutual funds.
2. Diversify investments – To mitigate risks, spread your investments across multiple options, like mutual funds, stocks, and fixed-income securities.
3. Consider tax implications – Consider double taxation treaties and utilise NRE accounts for repatriation without tax implications.

Professional advisory services – Enlist the help of portfolio management services if you find the process complex.

Conclusion
 

With a clear understanding of what portfolio management means, a well-thought strategy, and a reliable banking partner, you can continue to diversify and increase your wealth in India as an NRI.

This is where IDFC FIRST Bank supports you with user-friendly digital solutions, easy account access, and hassle-free fund repatriation, streamlining and expediting the process. With IDFC FIRST Bank NRI Banking Services, you can ensure that your assets continue to grow even when you are hundreds of miles away.