Investment in Government Securities and Corporate Debt
Non-resident Indian invest in government securities/treasury bills and corporate debt?
Under the FEMA regulations only NRIs and SEBI registered FIIs are permitted to purchase government securities/treasury bills and corporate debt. The details are as under:
A. Non-resident Indians can purchase government dated securities (other than bearer securities) or treasury bills or units of domestic mutual funds; bonds issued by a public sector undertaking (PSU) in India; shares in public sector enterprises being disinvested by the government of India. They can also invest, on non-repatriation basis, in dated government securities (other than bearer securities), treasury bills, units of domestic mutual funds, and units of Money Market Mutual Funds in India, or National Plan/Savings Certificates on non-repatriation basis. The guidelines for these schemes are framed by the concerned government agencies.
B. A SEBI registered Foreign Institutional Investor may purchase, on repatriation basis, dated government securities/treasury bills, non-convertible debentures/bonds issued by an Indian company and units of domestic mutual funds either directly from the issuer of such securities or through a registered stock broker on a recognised stock exchange in India. The FII is required to ensure that the FII allocation of its total investment between equity and debt instruments (including dated government securities and treasury bills in the Indian capital market) should not exceed the ratio of 70:30.
In case the FII is set-up as a 100 per cent debt FII, it can invest the entire corpus in dated government securities including treasury bills, non-convertible debentures/bonds issued by an Indian company subject to limits, if any, stipulated by SEBI in this regard.
The investment in government securities/treasury bills and corporate debt is subject to a ceiling decided in consultation with the government of India. Investment limit for the FIIs as a group in government securities currently is $3.2 billion. The limit for investment in corporate debt is $1.5 billion. At present, the FIIs can also invest in Innovative instruments such as Upper Tier-II capital up to a limit of $500 million.
Online Share Trading for NRIs
An NRI, PIO or OCI can invest in online share trading, it facilitates non-resident Indians to open online share trading account comprising of a demat account, PIS account and an NRE bank account that enables them to trade Indian stock markets online and apply for IPOs — initial public offerings on major Indian stock exchanges like NSE- National Stock Exchange (Nifty), BSE - Bombay Stock Exchange (Sensex). Through us trading for an NRI has become simple, fast and reliable online. Categorically speaking 3 accounts are opened — trading account, demat account and a PIS account (Portfolio Investment Scheme). All these three accounts are linked together for online share trading purposes for NRIs on major stock exchanges in India.
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Real Estate
Real estate sector in India is booming. Research indicates an unprecedented growth in the Indian real estate market from the current $14 billion to $102 billion in the next 10 years. The global real-estate consulting group Knight Frank has ranked India fifth in the list of 30 emerging retail markets.
There are no restrictions on the kind of investments that non-resident Indians can make in Indian real estate. There are various types of investments that can be made.
1. Regular commercial or residential investment wherein an investor purchases a property that is constructed/under construction and is vacant.
2. An investment where the property purchased is already leased out and hence provides an immediate return on investment. The yields for residential property are typically lower than those for commercial properties. Residential properties offer a yield of around 4% to 5% per annum while commercial properties are in the range of 7% to 12% depending on location, type of construction, developer, tenant etc.
3. Agricultural land – The idea behind this kind of investment is to acquire agricultural land, get a Change of Land Use (CLU) to say, residential, and then sell the land to a developer. The jump in land value is substantial once the conversion is made. However, only investors who wish to be actively involved with their investment and have a big appetite for risk should make this kind of investment. Both stages — acquiring the land and getting the CLU are very time consuming and are very uncertain especially for someone not well versed with the Indian real estate market at the rural level.
4. Another investment option is what is referred to as the "assured return" method. This method is used to invest in properties that are under construction or are about to start being constructed. As per this method, a developer will offer an investor a return on any funds the investor wishes to invest in the developer's project. Assume that for a proposed commercial building the return offered is x% per annum and the investor wishes to invest $100. In this case the developer will pay the investor x% on $100 till such time that the investor's space (worth $100) in the building gets leased. Typically, this would mean that for the 18 months the building is under construction the developer will be paying "rent" for the investor's space. Moreover, the developer is contractually bound to find a tenant for the investor once the building is ready and ensure that the rent the tenant pays for the space will maintain a return of x% to the investor. It is also in the developer's interest to find a tenant as soon as possible because, as mentioned earlier, the developer will have to keep paying the investor the x% return till a tenant moves into the space.
5. Another way to invest would be through one of the domestic or foreign real estate funds coming to India. These are venture capital funds that aim to provide investors with IRRs of around 25-30%. The same rules for FDI apply to foreign funds while there are no such restrictions on domestic funds.4
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