Investment advisers in the UAE, in an upbeat mood on the long-term prospects of the Indian stock markets, are suggesting non-resident Indians (NRIs) stay invested in the Indian secondary capital market directly or through mutual funds.
Investors are also being advised to grab the opportunity to invest in the primary market as half a dozen companies are set to come out with public issues promising attractive appreciation on listing.
Mutual funds have emerged as an attractive avenue to promote the financialisation of assets and earn market-linked returns over the long-term, with disciplined financial planning.
The mutual fund industry in India is set for exponential growth and is expected to reach INR 100trn (£991m, $1.38bn, €1.1bn) over the next 10 years, according to a consortium of top asset management companies (AMCs). The mutual fund investor population in India has reached a critical mass of 23 million.
However, hand-holding is required for new as well as experienced investors by mutual fund distributors and investment advisers. Top AMCs along with India’s National Stock Exchange (NSE) plan to have 50,000 new mutual fund distributors over the next three years.
“For NRI investors, the current Indian stock market is an opportunity to cash in on the upbeat sentiment following a sharp jump in corporate earnings and a resultant bullishness. They can invest directly if they have the expertise or indirectly through mutual funds,” said Jojo James, chief executive, Fosbury Wealth Managers, and Partner of Tamim Chartered Accountants, Dubai.
For the uninitated, James offers a primer.
As mutual funds in India do not accept investment in foreign currency, NRIs have to open a non-resident external (NRE), non-resident ordinary (NRO) or a foreign currency non-resident (FCNR) account in an Indian bank.
The advantage is that money in an NRE account can be repatriated from India back to their place of resident abroad, whereas money in NRO account cannot be repatriated.
Once the KYC (know your customer) requirements of the banks are complied with, investors can transact online.
James explained that, even though NRIs are exempted from paying income tax in India, the tax rates for NRI investors in mutual funds are the same as for resident Indians.
Short-term capital gains — held for less than one year — from equity and equity-oriented hybrid funds are taxed at 15%; while long-term capital gains — more than one year — beyond INR 100,000 are taxed at 10%.
For non-equity funds, the short-term capital gains — held for less than three years — are added to income and taxed at slab rate while long-term capital gains are taxed at 20%.
The tax rules for NRIs are different when it comes to redemption of mutual funds. NRI investments are subjected to tax deduction at source (TDS) when redeemed. The tax is at the highest rate applicable to such investments.
The TDS for long-term capital gains from equity and equity-oriented hybrid funds is 10% and 20% for debt-oriented hybrid schemes and debt funds.
The recent bull run on the Indian markets have taken stock prices to dizzying levels, prompting retail investors to look for initial public offers (IPOs) by promising companies.
As many as 25 companies tapped the primary capital market since October 2020 and almost all were oversubscribed several times.
Once the stocks were listed on the exchanges, the prices appreciated manifold. This created appetite for new issues. Riding on the upbeat market sentiment, as many as five companies are set to come out with public issues this week to raise an estimated INR 37.64bn.
The companies are waiting to capitalize on a sharp increase in new retail investors.
In January and February 2021 alone, nine companies tapped the market and garnered a total of INR 109.5bn. The funds raised through the IPOs during this two months are the highest since the corresponding period in 2008. Shares of these companies will be listed on BSE and NSE.
NRI investors stand a good chance to gain from these public issues.