How can NRIs invest in Indian startups?

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In the previous chapter of Smart Money, we took a trip down memory lane and saw how our economy grew into the current state it is in right now. In fact, India is one of the most preferred investment destinations in the world right now. Scores of foreign investors, both individual and institutional, have finally recognized the immense growth potential of our economy and are consistently investing in Indian businesses.

Now, considering the high future growth potential of the nation, if you’re a Non-Resident Indian (NRI), you may also want to invest in Indian startups. And that’s exactly what we’re going to be looking at in this chapter. If you’re looking for NRI investment options, here’s how you can invest in Indian businesses.

How can NRIs invest in Indian startups?

If you can remember, we saw quite a bit about angel investing as a means to invest in startups in Module 2 of this course. That’s exactly the path NRIs should take to invest in Indian startups. Angel investing is by far one of the easiest investment options for NRI in India.

As you’ve already seen in the chapter on angel investing, many Indian startups approach angel investors during their initial days to raise capital for expanding their operations. Being an NRI investment seeker in the Indian startup market, you can use the need for startups’ to obtain capital to your advantage. However, you would first need to join an angel investing platform online before you can start investing.

Upon joining an angel investing platform, you can browse through their startup listings and pick and choose the business that you feel is the right pick for you. Generally, angel investing platforms tend to pool the funds of several angel investors and invest them in the startups. And for that purpose, many may have even set up special funds, known as Alternative Investment Funds (AIFs) as well. You could invest in these special funds that the angel investing platforms have set up, which will in turn invest the funds in the startups.

That said, here’s a pointer. When investing in any AIFs, it is a good idea to ensure that the AIF is registered with the Securities and Exchange Board of India (SEBI) since it provides you with a level of protection in case something goes wrong. Many funds may not be registered, which can pose higher risks for you, the investor.

Things that NRIs should keep in mind when investing in Indian startups

We’ve already covered three primary things that individuals should keep in mind when investing in Indian startups in Chapter 4 of Module 2 of this course. In addition to those, here are some other things that NRI investment seekers should keep in mind.

 

1. There are ceiling limits on NRI investments

When it comes to equity investments in Indian startups, the Reserve Bank of India has set certain ceiling limits beyond which NRIs cannot invest. Depending on the company, the limit can either be 10% or 24% of the total paid up capital of the company. This limit is on the total NRI investments.

With respect to a single NRI, the investment ceiling limit is set at 5% of the total paid up capital of the company. Therefore, when choosing to invest in Indian startups, always make sure that it is well within the limit prescribed by the RBI, so as to not contravene any provisions laid out by it.

2. Take repatriation into account

There are two different investment options for NRI in India. You can either invest in the equity of a company through an NRO (Non-Resident Ordinary) account or through an NRE (Non-Resident External) account.

The NRO account is a non-repatriable account and does not allow you to transfer the funds from the account to your country of residence, whereas the NRE account allows free repatriation. And so, when investing in an Indian startup, it is a good idea to do so through an NRE account if you favour transferring sale proceeds or dividend income to your country of residence.

Wrapping up

And, that’s a wrap! Although riskier than other options, Indian startup companies are some of the best NRI investment options currently available. If things go favourably, your investment can provide you with an exceptional and unmatched rate of return.

A quick recap

  • Angel investing is by far one of the easiest investment options for NRI in India
  • Many Indian startups approach angel investors during their initial days to raise capital for expanding their operations. Being an NRI investment seeker in the Indian startup market, you can use the need for startups’ to obtain capital to your advantage.
  • However, you would first need to join an angel investing platform online before you can start investing. 
  • Many such platforms have even set up special funds, known as Alternative Investment Funds (AIFs) as well. You could invest in these special funds that the angel investing platforms have set up, which will in turn invest the funds in the startups.

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FAQ'S

A Non-Resident Indian (NRI) is a person who is resident outside India but is a citizen of India.
You can invest in Indian startups using an NRO account or an NRE account. The NRO account is non-repatriable, meaning that you cannot transfer the funds from the account to your country of residence, whereas the NRE account supports free repatriation. So, when investing in an Indian startup, it is a good idea to consider whether or not you wish to transfer the sale proceeds, and use the right account accordingly.
An AIF is a blanket term used to refer to any fund incorporated in India, which collects funds from both Indian and foreign investors to invest in select asset classes. It is an easy way for NRIs to invest in Indian assets, including startups.
Yes, if you’re an NRI, you can invest in startups across various sectors. The angel investing platform that you choose will typically have startups from different sectors listed. You can make your choice accordingly.
NRIs and foreign nationals are both permitted to invest in Indian companies in accordance with the existing Foreign Direct Investment policy of India.
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