The Indian rupee continues on its downward slope and touched a low of 80 rupees per US dollar (USD) this week. The global macroeconomic headwinds coupled with the geopolitical situation created this situation for the slide to continue. From January 2022 to date, the Rupee has fallen over 7% against the US Dollar.

Historically, the falling rupee has always been seen as an attractive investment opportunity by NRI investors. Borrowing funds outside India at cheaper rates and then investing them in India for higher returns can create a plethora of investment opportunities in India.

For NRIs planning to invest in India or repatriate income to their families in India, the depreciation of the rupee makes repatriated dollars much more valuable to spend and save. Let us look at the possible avenues where an NRI investor can invest and deploy money in India.

Fixed income

With the recent rise in interest rates, term deposits may find themselves in favor of risk-averse investors. Currently, interest rates on Non-Resident External Term Deposits (NRE) range from 5.30% to 5.75%, for terms ranging from one to ten years. NRE deposits also have the added benefit of being tax exempt for interest in India and provide the option of repatriating all the money to the foreign country if required.

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As NRE Term Deposit interest is credited in Indian Rupees, there may be a risk of exchange rate fluctuation when they wish to repatriate the amount to their home country. If the NRI investor is not ready to bear the exchange risk, he can opt for foreign currency non-resident deposits (FCNR). FCNR deposits are deposits made with Indian banks in foreign currency (e.g. USD).
RBI has temporarily cleared banks to raise new FCNR(B) and NRE deposits with the NRIs, during the period from July 07, 2022 to October 31, 2022 without reference to the regulations in force on interest rates. Following this easing, several banks have revised their FCNR deposit rates and these interest rates now range from 2.85% to 3.50% (in USD), for periods of one year to less than 5 years.

Debt Mutual Funds

Debt mutual funds (MFs) are also a possible avenue for NRIs to invest in, where regular interest payments are not preferred. Debt funds are tax efficient and can offer the opportunity to earn higher returns than other fixed income investments. There are various NRI mutual fund schemes where investment can be made subject to specified conditions.

Stocks and Mutual Funds

With increasing market volatility and fears of recession, investing in stocks may not seem like a preferred investment option at this point. However, for a savvy long-term investor with a longer investment horizon, this can turn out to be a great opportunity. Stocks and equity mutual funds offer a greater chance of anti-inflation and tax-efficient returns to investors and they will be lucrative for NRI investors who sit on the sidelines to invest their money and can invest (subject to specified conditions). Every investor should be aware that equity investments are subject to market risk and volatility.

One important aspect that NRIs should be aware of is the FATCA compliance requirement. FATCA or the Foreign Account Tax Compliance Act requires all financial institutions to compulsorily share details of all transactions involving US citizens or residents with the US government. This is to ensure that there is no deliberate tax evasion on the income of US citizens/residents overseas. The Indian government has also signed an Intergovernmental Agreement (IGA) with the United States to improve international tax compliance and implement FATCA. However, FATCA only applies to US persons (i.e. US citizens or residents for US tax purposes).

Immovable

For Indians, real estate has always been considered a great way to invest. The falling Rupee makes it an ideal time to make a down payment for NRIs looking to buy property or prepay part of the housing loan as each dollar would yield more Rupees. NRIs looking to relocate to India in the foreseeable future may also find the perfect time to take advantage of the favorable exchange rate. However, it is pertinent to note that NRIs and OCIs are not allowed to purchase agricultural land, plantations or farms in India.

With the Indian Rupee struggling to maintain its value against the resurgence of the US Dollar, now could very well be the time for an NRI to repatriate money to India. NRI investors should be vigilant and consider interest rate and tax implications while choosing the right investment. Investors should be aware of their risk appetite and investment time horizon before making any investment decision. They should also be aware of the investment terms specified and their compliance requirements regarding income generated in India and assets created in India.

The author is Tax Partner, People Advisory Services, EY India

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