‘Never depend on a single income. Make an investment to create a second source.’ - Warren Buffet
India is poised to be the most attractive destination for investments. Owing to its robust economic growth, structural reforms, and technological advancements the country has promising growth opportunities.
Investing in India will help you earn higher returns while boosting the country’s economy.
While stocks and equity mutual funds are great long-term, growth investments, they are not appropriate for short-term investing or generating regular income. This is because they are very volatile and generate unpredictable returns in the short-term.
In this article, we have put together a list of investments that NRIs can use to generate monthly income.
We have segregated the list based on risk - high and moderate risk investments for working professionals and low risk investments for retirees.
Best Monthly Income Investment for NRIs (Working Professionals)
You may or may not move back to India. No one is certain about the future either. But, if at all you plan to move back, being financially ready for the return to India is the best gift you can give yourself.
Moving to India might bring changes to your income. Having an additional source of monthly income can come handy.
Young NRIs may have a higher risk tolerance and a longer investment horizon. This is the best combination in the world of investing to generate high returns. Here's a list of the best monthly income investments if you are a 25-55 year old NRI:
Real Estate
Commercial Real Estate
Rental income is a stable source of monthly income. Investing in commercial properties, such as office spaces, retail shops, warehouses, etc., can be a lucrative option to earn rental income and benefit from appreciating property value.
Commercial real estate typically offers higher rental yields than residential real estate. The commercial rental yields in India range from 7% to 10% per annum. Also, commercial real estate has a higher capital appreciation potential. The historical returns are at 5% to 10%.
There are three types ways to invest in commercial real estate:
- Physical commercial real estate requires you to have a large capital, and you also need to factor in the maintenance costs, vacancy risks, and legal issues. Popular cities for physical commercial real estate in India are Bangalore, Mumbai, Gurgaon, and Hyderabad.
- Real Estate Investment Trusts (REITs) invest in income-generating commercial properties. They offer liquidity, diversification, and professional management and pay monthly dividends. REITs in India include, Embassy Office Parks REIT, Mindspace Business Parks REIT, and Nexus Select Trust.
- Fractional ownership allows you to diversify your real estate portfolio. Instead of investing all your funds in a single property, you can invest in multiple properties across locations. Some platforms that facilitate fractional real estate ownership in India are hBits, WiseX, Square Yards and 360 Realtors.
At a glance
Residential Real Estate
Rental income from residential properties, such as apartments, villas, plots, etc., can be a good source of monthly income. Residential real estate can offer rental income as well as capital appreciation.
You can rent or lease your existing real estate in India and generate monthly income. For example, if you have ancestral properties and you do not plan to live in them, you can rent or lease such properties to generate additional income.
Or, if you acquired multiple properties in India while abroad, you can rent them out while keeping one for personal use.
The residential rental yield in India is about 1.5% to 3.5% in most major cities.
Systematic Withdrawal Plans (SWPs): Equity and Hybrid Mutual Funds
Through SWP, you can set up a standing instruction for a mutual fund to periodically redeem a fixed amount of your investment.
This provides a regular income stream; it works opposite to the Systematic Investment Plan (SIP), where you regularly invest a fixed amount at predetermined intervals to accumulate wealth over time.
SWP can help you create a regular income stream from your mutual fund portfolio while allowing your remaining investment to grow.
Depending on your return expectations, you can invest in equity or hybrid mutual funds.
Equity mutual funds invest predominantly in stocks and can offer higher returns (12% to 15%) in the long run but also carry higher volatility and market risks.
Hybrid mutual funds invest in a mix of equity and debt instruments and can offer a balance of risk and return (9% - 12%) with lower volatility than pure equity funds.
Corporate Bonds
Corporate bonds are debt instruments issued by companies to raise funds from investors for various purposes, such as expansion, acquisition, working capital, etc.
Corporate bonds pay a fixed interest rate, usually monthly, quarterly, half-yearly or yearly, and repay the principal amount at maturity.
They offer higher interest rates than government bonds or bank deposits. However, corporate bonds also carry higher credit risk. Credit risk or default risk refers to the potential that the bond issuer may fail to meet their financial obligations, such as principal repayment or interest payments.
Therefore, you need to check the bond issuer's credit rating, which indicates the financial strength and creditworthiness of the company.
You can invest in corporate bonds either directly through the stock exchanges or bond investment platforms.
Some of the corporate bonds with AAA ratings are 8.48% L&t Finance Limited, 8.01% Tata Capital Housing Finance Limited, 7.85% Shriram Transport Finance Company Limited, etc.
An important thing to check while investing in bonds is the frequency of interest payments as it varies across bonds and the eligibility, whether you (NRIs) can invest in them.
Dividend Paying Stock: A Special Mention
Investing in dividend-paying stocks can be another way to earn income from your investments in India.
Dividends are the profits distributed by companies to their shareholders, usually on a quarterly or annual basis.
However, some companies may also pay monthly dividends, depending on their cash flow and dividend policy. Dividend-paying stocks can provide you with a steady and passive income and the potential for capital appreciation.
However, you must be careful while selecting dividend stocks, as not all high-dividend stocks are good investments.
You need to look for companies with good fundamentals, growth prospects, earnings stability, payout ratio, and dividend history to ensure that the dividends are sustainable and consistent.
Some of the popular dividend paying stocks in India include Hindustan Zinc, Vedanta, TCS, ITC and Tech Mahindra.
At iNRI, we recommend equity mutual funds over stocks for both wealth creation and regular income. Here’s our blog comparing stocks and mutual funds.
Best Monthly Income Investment for Retired NRIs
Retirement is the time when you sit back and relax. Now is the time your money works for you. If you plan to retire in India, you need to ensure your Indian investments are providing enough monthly returns to meet your expenses.
As a retired NRI, you are likely to have a lower risk tolerance. The primary motive is to preserve your capital and generate a stable and secure income for your post-retirement expenses.
India has many small savings schemes like Senior Citizen Savings Scheme (SCSS) and Pradhan Mantri Vaya Vandana Yojana (PMVVY) for retirees but sadly these are not available for NRIs.
Thus, you need to look at other financial instruments that offer regular income during retirement. Here's a list of the best low-risk monthly income investments in India:
Debt Mutual Funds
Debt funds are a type of mutual fund that primarily invests in fixed-income instruments, including corporate and government bonds, corporate debt securities, and money market instruments.
These are low risk funds that are particularly suitable if you seek regular income. Compared to equity funds, debt funds carry lower risk.
If you've been saving through traditional fixed-income products like bank deposits and are seeking stable returns with minimal volatility, debt funds can be a good alternative. Historically, the returns from debt schemes (around 7-9%) have been higher than bank deposits.
Debt mutual funds can be a viable addition for NRIs seeking low-risk investments, as further detailed in the NRE FDs vs Debt Mutual Funds guide.
Fixed Deposits (FDs)
FDs are a popular and safe investment option. They offer a fixed and guaranteed return, irrespective of the market fluctuations.
You can open an FD account with any Indian bank, either in Indian rupees or in foreign currency, depending on your account type. There are three types of FD accounts for NRIs:
● Non-Resident External (NRE) FD,
● Non-Resident Ordinary (NRO) FD, and
● Foreign Currency Non-Resident (FCNR) FD
You can choose the tenure of your FD, ranging from 7 days to 10 years, and the frequency of interest payout - monthly, quarterly, half-yearly, or annually. The interest rates on FDs vary from bank to bank and depend on the tenure, currency, and type of account.
Generally, the interest rates on NRE FD and NRO FD are higher than those on FCNR FD, as the latter is immune to the exchange rate risk. Currently, the interest rates range between:
● NRE FD: 5.35% to 8%
● NRO FD: 3.50% to 8%
● FCNR FD: 0.5% to 6%
As of Nov 2023
Annuity Plans
Annuity plans are insurance products that provide a regular monthly income for a fixed period in exchange for a lump sum premium. These plans in India can help you secure your retirement income, as they offer guaranteed returns, irrespective of the market conditions.
There are different types of annuity plans in India:
- Immediate Annuity: This requires you to put in a lump-sum premium and offers immediate and guaranteed monthly income at predefined intervals.
- Deferred Annuity: Here, you initially build a corpus, which is later utilized to purchase the annuity during retirement. Typically offered through pension plans.
- Fixed Annuity: You get a fixed annuity payout throughout the payment period.
- Variable Annuity: This offers flexible annuity payouts, which are subject to variations based on the market performance of underlying investments. The National Pension Scheme (NPS) is an example of a market-linked variable annuity investment.
- Lump-sum Annuity: Some plans offer the option of receiving a lump sum payout. However, it is available only at specified intervals and may not cover the complete retirement benefit.
National Pension Scheme (NPS)
NPS is a voluntary pension scheme introduced by the Government of India to provide social security and retirement benefits to all citizens of India. NRIs can also invest in the scheme.
Your contributions should ideally start before your retirement. And you will receive monthly income only after retirement (60 years).
You must build a corpus through regular investments across different asset classes - equity, corporate bonds, government securities, and alternative investments, through various pension fund managers. You (NRIs) can only invest in NPS Tier I accounts.
NPS offers two choices:
- Active Choice: You can decide the asset allocation.
- Auto Choice: The asset allocation is automatically done based on your age and risk profile.
When you are 60, you can withdraw up to 60% of the accumulated corpus from your NPS account - tax-free. With the remaining 40%, you must buy an annuity plan to provide you with a regular monthly income for life.
Additionally, your NPS account contributions qualify for tax deduction under Section 80C (Rs 1,50,000) and Section 80CCD (Rs 50,000) of the Income Tax Act, 1961.
Government Bonds: A Special Mention
Government bonds are debt instruments the central or state governments issue to fund various public projects and expenditures.
Government bonds pay a fixed interest rate to the investors, usually semi-annually or annually, and repay the principal amount at maturity.
Government bonds are considered the safest investment option, as they carry a sovereign guarantee and have no default risk.
In 2020, the Reserve Bank of India (RBI) introduced the 'Fully Accessible Route' (FAR), allowing NRIs to invest in Government Securities (G-Secs), State Development Loans (SDLs) and Treasury Bills (T-bills). FAR allows you to access the Indian bond market without any restrictions or limits.
Currently, the interest rates on government bonds range from 6% to 8% per annum, depending on the tenure and type of bond.
At a Glance
The following table lists the best monthly investment schemes along with their potential monthly incomes on a Rs. 1 crore investment:
Conclusion
As you can see, many investment options exist for NRIs like you to earn monthly income in India.
However, you need to consider your risk profile, financial goals, tax implications, and currency fluctuations before choosing any investment option.
If you are confused about the right investment option, speak to our experts, who can guide you through the selection process and assist with investments.
Suggested Read - Why NRIs Shouldn't Invest In US Listed India ETFs like INDA/INDY
Before investing, explore the best ways to send money to India efficiently and at lower costs in Best Ways for NRIs to Send Money to India blog.
For NRIs considering different investment avenues, knowing the distinctions between FCNR, NRE, and NRO accounts can help make better financial decisions. Read more about these accounts here.
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