Best Foreign Investment Options in India

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According to a few months old UN report, the Indian economy attracted $44 billion FDI (foreign direct investment) last year. The amount ranked the country 10th place worldwide for this kind of investment. The country has relaxed rules on foreign investment and also raised the limits in different sectors, for both entities and individuals.

So what are the best investment options in India? While foreign investors want to secure their funds, it’s important to understand that there’s no such thing as 100% safe investment in India, or anywhere in the world for that matter. However, if you’re looking to grow your wealth in a low-risk manner, you can diversify your capital across different investments.

Here are your options:

1.  Bonds

Earlier in the year, the RBI (Reserve Bank of India) increased the limits on ownership of Indian state and government bonds by foreigners. They’re allowing foreigners to buy non-convertible debentures as well as corporate bonds. The easiest way to buy bonds in India is to work with a financial broker, who will ask you to open an account to make the purchase.

Some brokers will even allow you to send money online for account opening and account deposit purposes. Options like Ria Money Transfer allows investors to benefit from low fees and great rates when they send money to a foreign country. A transfer option that allows you to deposit money directly into a foreign bank account would be more suitable than an option that just offers a cash payout option.

2.  Stocks

American Depositary Receipts (ADRs) are the conventional route to investing in Indian companies. They represent individual stocks traded on Nasdaq, AMEX (American Stock Exchange) or NYSE (New York Stock Exchange). ADRs work like this: a US-based financial institution buys multiple shares in Indian companies and reissues them on the American stock market. As a result, a single ADR contains 10 or greater shares of an Indian company.

ADRs can be bought via financial institutions in the US or by transferring money into a foreign financial institution that supports ADR trading. You can invest in one of the three types of ADRs. The first level includes less popular Indian companies and ADRs that are traded over the counter. The second level consists of ADRs traded on NASDAQ and it carries shares of India’s high-tech firms. The third level includes full public offerings and have the strictest of SEC regulations. ADRs ensure that you’re able to invest in Indian stocks without exposing yourself to currency fluctuations.

3.  EFTs and Mutual Funds

Investors looking to invest in different sectors of the Indian Economy can look into mutual funds and EFTs (Exchange Traded Funds). These include a portfolio of consumer products, small cap stocks, and large corporations. You can invest in mutual funds and EFTs directly by obtaining a QFI (Qualified Foreign Investor) status. This status can be gained by investors who live in a country that has a membership of FAFT (Financial Action Task Force) and has IOSCO’s MMOU signature with SEBI (Securities and Exchange Board of India).

There are several mutual funds you can invest in. For instance, MUTF: GIAAX (Goldman Sachs Equity India) invests 80% of its borrowings and assets in equities that have ties with the Indian economy. A list of available EFTs can be found here.

These are your investment options if you’re looking to spread your capital in India.


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