NRI Investment


Invest through Preference Shares
Foreign investment through preference shares is treated as foreign direct investment. Foreign investment in preference share is considered part of share capital and falls outside the External Commercial Borrowing (ECB) guidelines/cap. Preference shares are treated as foreign direct equity for purpose of sectoral caps on foreign equity, where such caps are prescribed, provided they carry a conversion option. If the preference shares are structured without such conversion option, they would fall outside the foreign direct equity cap. Issue of equity shares against lump sum fee, royalty and ECBs in convertible forex are permitted.

Sponsored ADR and two-way fungibility
An Indian company may sponsor an issue of ADR/GDR with an overseas depository against shares held by its shareholders at a price to be determined by the lead manager. 
Under the limited two-way fungibility scheme, a registered broker in India can purchase shares of an Indian company on behalf of a person resident outside India for the purpose of converting the shares so purchased into ADRs/GDRs. The scheme provides for purchase and re-conversion of only as many shares into ADRs/GDRs which are equal to or less than the number of shares emerging on surrender of ADRs/GDRs which have been actually sold in the market. Thus, it is only a limited two-way fungibility wherein the headroom available for fresh purchase of shares is restricted to the number of converted shares sold in the domestic market by non-resident investors. So long as ADRs/ GDRs are quoted at discounts to the value of shares, an investor will gain by converting the ADRs/GDRs into underlying shares and selling them in the domestic market.

Investment in Property
It is advisable to invest in commercial rented properties rather than investing in residential properties. This is because these properties offer returns up to 10% p.a. which can be transferred to the NRI's account. Maintaining of residential properties and monitoring the same has become a pain for NRIs. As good developers have started offering commercial rented properties for sale, it is an excellent opportunity for NRIs to invest in the same.

Issue of shares by Indian companies to foreign collaborators/investors
FDI up to 100% is allowed under the automatic route in all activities/sectors except in areas which require prior approval where provisions of Press Note 1 (2005 Series) are attracted. More than 24% foreign equity is proposed to be inducted for manufacture of items reserved for the small scale sector. FDI in sectors/activities to the extent permitted under the automatic route does not require any prior approval. Investors are only required to notify the regional office concerned of the Reserve Bank of India within 30 days of receipt of inward remittances and file the required documents along with form FC-GPR with that office within 30 days of issue of shares to the non-resident investors.
Transfer of shares/debentures by non-resident to a person resident in India
Any person resident outside India (other than NRIs/OCBs) can transfer by way of sale the shares/convertible debentures to any person resident outside India; subject to the condition that the acquirer or transferee does not have any previous venture or tie up in India in the same field or sector. An NRI or an erstwhile Overseas Corporate Body may transfer by way of sale, shares held by him to another NRI only with FEMA regulations, on a recognised stock exchange.
Transfer by way of gift:
Any person resident outside India, can transfer by way of gift the shares/convertible debentures to any person resident outside; subject to the condition that the acquirer or transferee does not have any previous venture or tie up in India in the same field or sector. An NRI may transfer by way of gift, the shares/convertible debentures held by him to another NRI only.
Transfer by way of sale:
A person resident in India may transfer to a person resident outside any share/debenture of an Indian company whose activities fall under the automatic route for FDI subject to limits, by way of sale subject to complying with pricing guidelines, documentation and reporting requirements for such transfers, as may be specified by the RBI.