With the rise in India’s economy, the guidelines under the Foreign Exchange Management Act (FEMA) have been established jointly by the Reserve Bank of India (RBI) & the Securities & Exchange Board of India (SEBI) to ensure a continuous flow of investments in India. NRIs have many investment options to choose from, & ULIPs are one of the most prevalent long term investment plans, offering dual benefits of wealth creation & life insurance benefits.
ULIPs are insurance cum investment plans, allowing the investment of funds to meet your long-term financial obligations, along with providing life insurance coverage. The premium amount paid is diverted towards the funds opted for, & the remaining amount is allocated towards life insurance. This plan also offers an option to switch between the funds & your changing requirements. The funds invested generally cannot be withdrawn in the lock-in period, i.e. 5 years, & a surrender fee is charged in case funds are partially withdrawn before 4 years. If the insured dies suddenly, his nominees will receive the death benefit or the fund value, whichever is higher. In case the insured survives the policy, he will receive the fund value that would have been accumulated depending on the fund’s performance.
Reasons to Invest in ULIPs by NRIs
Provided are the reasons why NRIs should invest in ULIPs:
- India comes under the top ten countries in the world in terms of economic growth.
- The investment options offered by Indian banks & NBFCs are new investment opportunities for NRIs.
- They can avail of many different varieties of investment plans here in India.
- It offers access to the Indian stock market through different investment options, such as ULP, allowing one to avail of dual benefits of investment & insurance.
- In India, there are many investment options available, i.e. from traditional investment plans to modern investment plans, NRIs can opt for any plan.
Steps to Invest in ULIPs for NRIs
Provided are the steps to invest in ULIPS for NRIs:
Step 1: Select a ULIP plan that best aligns with your financial objectives. It is necessary that the plan chosen should align with your financial goals & risk acceptance level.
Step 2: Choose the most suitable plan by comparing the different types of ULIPs available in the market. This can be done by evaluating all plans on the basis of their features & benefits to identify a plan that best fulfils all your needs & make an informed decision.
Step 3: With the help of a ULIP Calculator, calculate the potential benefits & returns, further helping in financial planning.
Step 4: The next requirement is to submit all the relevant documents & meet all the legal requirements, facilitating a smoother process.
Step 5: Start paying the premium amount to start the investment.
Benefits of investing in ULIPs for NRIs
Provided are the benefits of investing in ULIPs for NRIs:
- Insurance Coverage
One of the most important benefits of ULIPs is that they offer a dual benefit of investment with insurance under a single plan. This makes ULIPs the perfect form of life insurance for NRI investors who want to secure the financial future of their family along with wealth creation.
- Market Exposure
The returns on ULIPs are linked to the market, allowing investors to invest in debt, equity, or balanced funds. The portfolio of NRIs can be enhanced by availing the benefits of India’s fast-growing economy.
- Flexibility
ULIPs offer sufficient flexibility to switch between funds, adjust premium payments, & choose one plan amongst the different plans available. Due to NRIs having control over their investment, they have the option to flexibly customise the plan according to their financial objectives & risk tolerance level. The ULIPs are versatile investment plans that help in customising the plan according to the financial objectives, risk tolerance level, lifestyle changes, etc.
- Savings
ULIPs facilitate regular & long-term investments by combining insurance & investments linked to the market. This commitment to make regular payments of premiums over a certain period of time helps make informed decisions.
- Wealth Creation
ULIPs help create wealth over time, further enabling NRIs to achieve their financial objectives.
- Tax Efficiency
ULIPs allow a deduction of tax on the amount of premium paid u/s 80C of the Income Tax Act, 1961. Additionally, the maturity & death benefits received are exempt from tax u/s 10(10D) of the Income Tax Act, 1961.
Documents Required by NRIs to Invest in ULIPs in India
Provided is the list of documents required from NRIs to invest in ULIPs in India:
- Scan a copy of your passport to be considered as age & identity proof.
- Residence Proof in India
- A recent passport-sized photograph
- Proof of residence overseas
- PAN card copy or Form 60, in case you possess income earned in India
- Income proof
- A Foreign Residency Supplementary Questionnaire for NRIs or PIOs
- Overseas Citizenship of India (OCI) or Persons of Indian Origin (PIO) Card in case of a permanent overseas citizen
Taxation of ULIPs for NRIs in India
Provided are the guidelines for taxation of ULIPs for NRIs in India:
- Tax Benefits on Premiums Paid
The amount paid as a premium towards the ULIP is eligible for tax deduction under section 80C of the Income Tax Act, 1961.
- Tax Benefits on Maturity Proceeds
The amount of maturity benefits or death benefits is exempt from tax u/s 10(10D), subject to certain terms & conditions.
- Withholding Tax (TDS)
TDS is also applied to certain payouts made to NRIs, having different rates depending on the types of income. If the TDS is deducted in India, the refund can be claimed while filing the income tax return.
- Double Taxation Avoidance Agreements (DTAA)
The DTAA agreements entered into by India with different countries, preventing the double taxation of the same income twice, can benefit NRIs.
Conclusion
As NRIs are allowed to invest in India, they should be well aware of the rules, regulations, taxes, & documentation required to do so. To make an informed decision, they can also take expert or professional advice, which will help them align the investment plan with their financial goals. Also, ULIPS are a great source of tax savings in India, which makes them an ideal choice for investments. ULIPs also offer guaranteed benefits & help secure the financial future of NRIs, especially during retirement years.