Investment Opportunities in India

June 29, 2011

Investment Options for NRIs in India

The Indian economy has been on a continuous growth curve. This is providing the non-resident Indians (NRIs) to explore multiple options to invest their funds in their home country. The returns from India are considerably higher than those from the US or European countries.

Some of the investment options available to NRIs in India are:

  • Investment in the Indian equities markets, including IPOs
  • Investment in mutual funds
  • Company fixed deposits and non-convertible debentures of companies
  • Real estate investments
  • Government securities
  • National Savings Certificates issued by post offices in India
  • Deposits in Indian banks

Both NRIs and PIOs are offered several facilities by the Government of India. NRIs are Indian citizen who resides outside India, while PIO (Person of Indian Origin) refers to an individual who at any time held an Indian passport, or any of whose parents or grandparents was a citizen of India. While NRIs are allowed to invest in all sectors when Indian citizens are allowed, PIOs are allowed to invest only in non-agricultural sectors. A ‘24% Scheme’ allows Indian companies, except those engaged in agricultural activities, to issue up to 24% of their shares and debentures to NRIs with repatriation benefits.

The following is the list of foreign Investments which can give good returns and provide protection against inflation:

Mutual funds
Mutual funds have in its fold a number of innovative products nowadays, opening up innumerable choices for investors. The investor now has the option to choose a mutual fund that meets his risk acceptance and his risk capacity levels.

Direct Equity
As in other parts of the world, in India too stocks have outperformed every other asset class in a longer run.

Company Shares/Debentures
Direct investment can be made by NRIs in proprietary/partnership concerns in India as also in shares/debentures of Indian companies. Portfolio investments i.e. purchase of shares/debentures of Indian companies through stock exchange/s in India are also permitted. These facilities are granted both on repatriation and non-repatriation basis.

Government Securities/Mutual Funds/ National Savings Certificates in India
NRIs are permitted to invest their funds in Government securities, Indian mutual funds and certain other investments such as the National Savings Certificate (NSC). Investments in NSC can be made by NRIs subject to certain terms and conditions. However, NRIs are not permitted to invest in bearer securities like Kisan Vikas Patra, Public Provident Fund (PPF) etc.

The maturity proceeds of such investments can be repatriated if they are purchased out of funds remitted from abroad or out of NRE/FCNR accounts. However, the maturity proceeds of investments purchased out of funds in NRO accounts can only be credited to NRO accounts and cannot be repatriated abroad.

Immovable Property
Reserve Bank of India has granted general permission to foreign citizens of Indian origin, whether resident in India or abroad, to purchase immovable property in India for their bona fide residential purpose. They are, therefore, not required to obtain any prior permission of Reserve Bank. Further, the Reserve Bank has granted general permission for sale of such property without its permission.

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June 21, 2011

Investments in Exchange Traded Funds

Exchange traded funds are a combination of mutual funds and stocks in the sense that they follow a specified index like the former and traded in stock exchange like the latter. Investments in gold or real estate which are not conventional forms of mutual funds could be routed as ETFs. Exchange traded funds fluctuate according to an index which is unlike a non-indexed commodity like stocks.

Normal mutual funds are traded directly by AMCs (asset management companies). Money collected from investors creates a corpus which a fund manager uses to build an appropriate portfolio. For redemption of units certain portion of this corpus is sold. Traditional MFs (mutual funds) behave this way and are termed ‘in-cash’ units. In contrast, for ETFs all shares comprising an index are deposited with AMCs against creation units. As creating these ‘units’ involves deposition of underlying gold or shares these are ‘in kind’ in nature.

These large creation units are broken into small portions and traded in the stock market by authorized participants. As such, unlike a traditional MF where the corpus changes every time it is traded, for an ETF this remains intact. If however, the demand for ETF is high, more share deposition is done by authorized representatives with the concerned AMC for creating more units. Likewise for redemptions, these representatives take their shares back, sell them and pay investors.

Features of Exchange Traded Funds as against Mutual Funds
ETFs are always index specific and need certain named share deposition for creating units. Being index specific the portfolio remains unchanged as compared to a mutual fund where it might change daily. Also, ETF portfolio could be judged in advance as against MF which is known only at monthly disclosures.

ETF are traded in the stock market though a demat account as against mutual funds which are traded thorough asset management companies. Unlike mutual funds which are traded on net asset value (NAV) based on closing price, ETFs are traded at real time prices any point of the day. ETFs behave as open ended investments in the sense that unit capital changes with trading. In comparison, unit capital of MFs or stocks remains unchanged with trading or is close ended.

Investments in ETFs though safe are subject to market risks. For these investments large amounts of cash for redemptions are not required to be involved by asset management companies. Further, stocks need not be sold to meet cash redemptions unless the volume is too large. Normal trading of stocks is sufficient to manage regular redemptions. An investor in ETF only pays towards his share as compared to a MF investor whose cost is deducted from net asset value.

Benefits of Exchange Traded Funds
ETFs could be traded anytime of the day in stock exchanges in real time prices. It is possible to even trade one unit or make margin purchases of ETFs, unlike normal MFs where it is impossible. ETFs investments like all index funds are transparent and free from ambiguity. These investments are independent of fund managers’ involvement. These are passively regulated with low administrative and distribution costs.

June 15, 2011

Is it worth investing online?

Investing online is a new trend developed out of extensive internet usage complemented by a growing tendency for investing. Online investments have more to do with processes rather than money involvement. It is a convenience to investors, managers, and companies alike. Investments online could be in form of securities, mutual funds, shares, or deposits.

Investing online has its own benefits. With widespread use of computing devices and unprecedented advancement in communication technology, trading of goods and services through internet is an accepted practice. The main reason behind the success of online trading is saving of time and resources. Computerization has resulted in eliminating paperwork and considerable reduction in time for data collection and compilation.

Before emergence of online trade practices, trading in shares or investing in mutual finds or term deposits involved substantial paperwork. Verification of data was also time consuming and sometimes took days. Loss of data was not unusual resulting in time loss. For investments in securities, over subscription is normal for which refunds are made. Before online processes became popular, trading in shares or IPO (initial public offers) were made in stock exchange. With subscribers, brokers, and managers occupying exchange premises, it was constantly crowded.

Situation was similar in commercial banks and financial institutions. Crowded banks were found everywhere with customers, vendors, and employees trying to occupy his own place. Bank visits were regular and a routine affair for many investors. This was a bit troublesome for aged, and indisposed customers.

Online trading has changed all these practices. Sitting from the comfort of your home you could make comparison between securities before investing in them. Internet allows you to participate in stock trading across multiple exchanges. Global trading is a definite possibility which was unimaginable in times of exchange floor trading. Through online trading virtual presence is only required to participate in dealing with securities. This trading process also eliminates the necessity of brokers, and managers.

Mutual funds are other areas of online investment. Unlike stock trading investment managers play a distinctive role in handling mutual finds. Investments in mutual funds are usually done through managing organizations. Leading mutual fund managers have their own websites through which investors could put in money. Mutual funds investments are best done by these mangers as they are aware of the more profitable investments.

Availability of mutual fund options online allows you to compare among them. Prior to this facility, comparing among different mutual funds was painstaking. Traditionally, for proper investment in mutual funds it was necessary to study money market carefully. Without perfect understanding of money market behavior investments is mutual funds were extremely risky. With multiple websites dealing in money market studies, comparing among different investments is easier.

Another form of online investment is term deposits. Term deposits are among the most popular investments as yield is high and money stays secured. In addition to commercial banks and financial institutes, large business houses also take investments in form of term deposits. All these options are easily available online. A distinct advantage of online investments is that money might be transferred through bank transfers using internet, or by using debit cards. It is not necessary to go physically to your bank or investing concern.

Investing online is a distinct advantage for investors. Not only considerable time and resources are saved, it also gives you an opportunity to opt for the best available investment. Online investing is always a worthy proposition.

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