Investment avenues for NRIs (PART 1)

Investment avenues for NRIs (PART 1)

Investments with repatriation benefits.

100% scheme

Industries

Equity in new industries/expansion/diversification of existing industries listed as high priority industries; Indian company to obtain RBI approval

Investment in trading companies primarily engaged in exports (registered with Directorate General of Foreign Trade as Export/ Trading House/ Star Trading House/ Super Star Trading House); Dividend balancing from export earnings in specified industries; Indian company to obtain RBI approval

Equity in 100% Export Oriented Units (EOUs), units in free trade zone/ export processing zones, software technology parks (STPs) and Electronic Hardware Technology Parks (EHTPs); permission required from development commissioner of the Free Trade Zone/ EPZ/ Chief Executive of the STP/ EHTP

New issues of equity in Indian companies engaged in development of serviced plots, construction of residential and commercial premises, townships, building materials and financing of housing development.

Lock in of three years; repatriation of net profits for OCBs. No lock-in for repatriation of dividend/ interest/ convertible debentures of OCBs.

Domestic air transport services

Lock in of 5 years; repatriation and remittance of dividends out of accumulated Net Foreign Exchange; approval required from Foreign Investment Promotion Board

Equity of sick industrial units ; no lock-in for the investment

Indian company to obtain RBI Approval.

40% scheme

Industries

Subscription to new issue of equity/ convertible debentures of new or existing companies (both private and public limited) in industrial/ manufacturing projects (including expansion and diversification), hospitals/ diagnostic centres, hotels, shipping, software development and oil exploration services; Indian company to file with the RBI

Private banks (inclusive of 20% allowed to other foreign investors)


24% scheme

Industries

Subscription to new issue of equity/ convertible debentures of new or existing companies (both private and public limited) in finance, hire purchase, leasing, trading or other services (except agriculture/ plantation activities) and establishment of schools/ colleges; Indian company to file with RBI. Investment upto 24% is also allowed for investment in case of items reserved for the small scale sector

Other than the lock-in periods specified above, dividend/ interest income earned can be freely remitted.

Other investments with repatriation benefits

Investments

Domestic, private or public sector mutual funds; the mutual fund is required to obtain RBI permission

Bonds issued by Public Sector Undertakings (PSUs); the PSU is required to obtain the permission of Government of India (GoI)/ RBI

Shares disinvested by GoI in PSUs; the shareholding by a single NRI not to exceed 1% of the paid-up capital of the PSU

Fixed deposits with public limited companies for a minimum period of three years; the company to obtain RBI approval

Government securities through (not in bearer securities like Indira Vikas Patra/ Kisan Vikas Patra), units of the Unit Trust of India though authorised dealers (units can be purchased directly from UTI) and in National Savings Certificates.


Portfolio investment scheme
NRIs can acquire shares/ debentures of Indian companies or units of domestic mutual funds through the stock exchanges in India. There is an overall ceiling of 5% of paid-up equity share capital of the company/ paid-up value of each series of convertible debentures for purchase by NRIs/ OCBs.

An application for this has to be submitted to the Reserve Bank though a designated branch. These designated branches are the main branches of major commercial banks located close to the stock exchange(s). An NRI can operate through only one selected branch for this purpose. The Reserve Bank approval is valid for a period of five years after which it may be renewed by a letter.

This scheme also allows for

sale of shares/ bonds/ debentures by NRIs to residents

ii. transfer of rupee securities by non-residents as gifts

iii. transfer of rupee securities to non-residents as gifts

loans abroad against securities provided in India

loans in India to NRIs against shares/ securities/ properties held by them in India

loans in India to NRIs against security of NRI Bonds issued by State Bank of India

loans in India against guarantees by non-residents

loans to residents against shares/ securities/ properties in India from non-resident relatives.


Procedure for sale/ transfer

In case of shares/ debentures/ bonds acquired by NRIs through the portfolio investment scheme, a general exemption is provided by RBI if the sale is arranged through the same designated branch through which they were purchased. In other cases, necessary permission has to be obtained from RBI.

For sale/ transfer of shares/ debentures to residents by private arrangements, permission has to be obtained from RBI.

General permission from the RBI is also available for transfer of shares, bonds and debentures by way of gifts to resident close relative(s).

For sale/ transfer of shares/ debentures of Indian companies to other NRIs, no permission is required from RBI.

The transferee NRI would need permission for purchase of the shares.

Government securities/ units can be transferred through an authorised dealer while the units can also be repurchased directly by UTI.

Repatriation possible if the remittances were made from abroad of from NRE/ FCNR accounts;

Sale proceeds from securities purchased out of NRO accounts can only be credited to the NRO account.
Interest earned after the financial year 1994-95 onwards can be remitted as permitted by Reserve Bank.

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