Who is an NRI?
An NRI is an Indian citizen who resides outside India temporarily and holds a valid passport issued by the Indian Government. For instance, individuals residing abroad on a visa issued for employment or business purposes are considered to be Non-Resident Indians.
NRIs get to enjoy all of the benefits applicable to resident Indian citizens, including the right to invest. If you’re categorised as a non-resident, you can still enjoy the benefits of investing in India, and Unit Linked Insurance Plans (ULIPs) are one of the preferred investment options for NRIs keen on purchasing investments in their home country.
What is ULIP?
If you’re planning to invest in India, one of the many questions you may have unanswered is this: What is ULIP? A Unit Linked Insurance Policy (ULIP) is essentially a type of life insurance plan that combines both insurance and investment aspects. The premium that you invest in a ULIP is split into two parts.
A portion of your premium is directed towards providing you with life cover, while the other part is invested in the financial markets. You can earn market-linked returns on your premiums and create a good corpus for your financial goals. ULIPs come with a minimum lock-in period of 5 years, during which withdrawals are not permitted.
Can Non-Resident Purchase ULIP Policies in India?
If you are wondering - Can NRIs buy ULIPs, the answer is ‘Yes’.
As stated earlier, Non-Resident Indians, or NRIs, can purchase ULIP policies in India. The FEMA Act, 1999 allow NRIs to buy insurance plans in India, including ULIPs.
As an NRI, you can explore the different types of ULIPs available in India and buy a policy that aligns with your financial needs and goals. The premium is payable in Indian Rupees, and the insurance policy is also denominated in INR. NRIs can buy ULIPs online from their resident country or offline when visiting India after fulfilling the KYC norms required for the purchase.
Why should NRIs invest in India?
Non-resident Indians have more than one reason to consider investing in their home country. Here’s a quick look at some of them.
- India is among the fastest-growing economies in the world. And purchasing investments from banks and financial institutions based in India offers NRIs new investment opportunities, coupled with the possibility of favourable returns.
- The Indian financial market also gives NRIs a wide range of investment options to choose from. Right from non-market-linked fixed income alternatives to market-linked options like ULIPs, NRIs have no dearth of choices.
- Investing in India allows non-resident Indians to take advantage of the country’s stock market, particularly through options like ULIPs, which combine the benefits of investment and life insurance. In fact, the possibility of returns on ULIP plans is higher when you remain invested for the long term.
- By purchasing investment plans in India, you, as an NRI, can ensure that your investment portfolio is aligned with your life goals for various stages in life. Right from meeting objectives like creating an emergency fund to helping you save for your child’s education, investments in India can be extremely helpful.
Eligibility criteria for NRIs to buy ULIPs in India
The eligibility criteria depend on the plan that you choose. Some common ones are as follows -
- Entry age - Every ULIP has an entry age parameter which you need to fulfil to buy the plan. If you fulfil the age criterion, you can buy the ULIP as an NRI.
- Steady source of income - You need a source of income to pay the premium of the policy. The insurance company might require income proof when issuing the plan.
- NRI status - If you are applying for the ULIP as an NRI, you need to prove your NRI status too.
What documents do NRIs require to invest in ULIPs in India?
NRIs who wish to invest in ULIPs in India will need to submit a set of documents in order to be eligible for the investment. While the exact list of documents may vary marginally from one insurance provider to the next, these are the proofs generally required to invest in ULIPs, subject to the underwriting guidelines of the company.
- A scanned copy of your passport that serves as proof of your age and identity.
- A recent passport-sized photograph
- Proof of residence in India
- Proof of residence overseas
- Proof of income as required by the service provider
- Overseas Citizenship of India (OCI) or Persons of Indian Origin (PIO) Card if you are a permanent overseas citizen
- A copy of your PAN card or Form 60, if you possess income that is earned in India
- A Foreign Residency Supplementary Questionnaire for NRIs or PIOs
These documents are required in order to comply with the applicable Anti-Money Laundering and Know Your Customer (KYC) norms.
What are other important things NRIs investing in ULIPs in India should know?
Aside from the documentation requirements, NRIs investing in ULIPs in India should also be aware of other conditions, regulations, and benefits associated with this financial move. Here are some facts that can prove useful.
Currency fluctuations
When you earn income in foreign currency and pay the premium in INR, you need to understand the impact of exchange rate fluctuations, as they would determine the amount that you pay. The exchange rates determine how much foreign currency would be required to pay the premium in INR. Knowing the fluctuations would help you understand your premium expenses in foreign currency and how it changes with currency movements.
Non-guaranteed returns
ULIPs are market-linked insurance plans that do not guarantee returns. You have to bear the investment risks, and the returns would depend on the market performance of the fund that you choose.
Types of ULIPs
There are different types of ULIPs available in the Indian market, like whole life ULIPs, child based ULIPs, ULPPs, etc. It is recommended that you assess your coverage needs and choose a suitable plan that aligns with your goals.
Can NRIs claim tax exemptions by investing in ULIPs in India?
ULIP tax benefits are threefold as per the sections of the Income Tax Act, 1961. The premium paid is deductible under section 80C, whereas the claim proceeds are tax-free as per section 10(10D) of the Income Tax Act, 1961. And the long-term capital gains from ULIPs are also exempt from tax. NRIs too can enjoy these ULIP tax benefits by investing in India. The above-mentioned tax deductions/exemptions are subject to changes in tax laws, as amended from time to time.
How can an NRI pay the premium for investing in ULIPs?
If you wish to invest in ULIPs in India, you can pay your premium through any of the following banking methods.
- Through an Indian bank account
- Through an NRE account or an NRO account maintained with the Indian Bank
What modes of payment can be used by NRI investors to pay their premiums?
If you’re an NRI investing in ULIPs in your home country, you can pay your premium through any of these options.
- Domestic or international credit cards
- Internet banking
- Debit cards
- Online wallets like PayTM and Google Pay
- Credit Card Standing Instructions (CCSI)
- National Automated Clearing House (NACH)
- Online ECS mandates
What are the benefits of investing in ULIPs for NRIs?
NRIs who invest in ULIPs stand to benefit in several ways. Here’s a look at some of the advantages of investing in a ULIP scheme.
Market-linked returns
Since ULIPs give you exposure to Indian markets, you can participate in the Indian markets and enjoy ULIP plan returns when you stay invested over the long term.
Tax benefits
As mentioned earlier, ULIPs give you the tax-saving benefit too. You can claim tax deductions on the premium paid as well as on the death or maturity benefits paid out.
Financial planning
ULIPs come with a lock-in period of 5 years. This can be useful as a long-term investment plan to create a corpus for your financial goals. Moreover, with the different types of ULIPs available, you can choose a suitable plan that matches your goal. For instance, child based ULIPs can help you plan for your child’s financial future.
Insurance coverage
You get to enjoy the benefits of life insurance coupled with investment. This gives you financial peace of mind that if you are not around, your family will get financial assistance to help them meet the financial loss that they suffer.
Flexibility
With the flexible features of switching, partial withdrawals, top-ups, premium redirection, etc., you can manage your investments easily.
Key takeaways -
- Non-Resident Indians (NRIs) can invest in ULIPs in India to diversify their portfolios and also to enjoy market-linked returns.
- ULIPs are life insurance plans that allow NRIs to enjoy insurance coverage and also gain exposure to the Indian markets,
- NRIs might have to fulfil some simple eligibility criteria to apply for ULIPs.
- ULIPs also allow tax benefits on the premiums paid and the policy benefits received.
- A set of documents is needed to be submitted to buy ULIPs. Some of the common documents include identity proof, age proof, address proof, a copy of a passport and a Visa.
- When buying ULIPs, NRIs should understand the market risks, risk of exchange rate fluctuations, and types of plans available.
- Premiums can be paid through their NRE or NRO bank account or swift transaction or through various modes.
- Other benefits of ULIPs include flexibility, market-linked returns, tax benefits, and help in financial planning.
Conclusion
To conclude, the answer to the question - Can NRIs buy ULIPs - is ‘Yes, they can’.
Among the various investment opportunities for NRIs in India, ULIPs are one that can be considered. FEMA allows NRIs to buy ULIPs from an insurance company in India. In fact, by buying ULIPs, NRIs can unlock the various benefits that these plans have to offer. They can buy a savings-oriented life insurance plan to save and create a corpus in India for their loved ones, be financially secured with life insurance coverage, get exposure to the Indian markets, save tax on the premium paid, and create a tax-efficient corpus for their financial goals. Plus, with term insurance plans, NRIs can also enjoy financial protection against the risk of untimely demise. So, understand the types of ULIPs available, how these plans work, and choose a suitable policy for your needs.
FAQs
Can NRIs purchase ULIPs while residing abroad?
Yes, NRIs can buy ULIPs even when they are residing abroad. They can buy the policy online while residing abroad. You can visit the insurer’s website or use its mobile app to buy a suitable ULIP plan in India.
Do NRIs get tax benefits under Section 80C for ULIP premiums?
Yes, the benefit of Section 80C is available for NRIs too. NRIs can enjoy tax deduction of the premium paid under Section 80C up to ₹1.5 lakhs, subject to specific terms and conditions¹.
Is the ULIP maturity amount tax-free for NRIs?
The maturity amount of a ULIP is tax-free under Section 10(10D), provided some terms and conditions are fulfilled²,³.
Are there any restrictions based on the NRI's country of residence?
Usually, insurance companies do not have restrictions on policy issuance based on an NRI’s country of residence. However, the premiums might vary depending on the risk of the NRI’s residence country⁵.
Can NRIs switch ULIP funds from abroad?
Yes, switching can be done from anywhere in the world. NRIs can log into their online account and place a switching request. Switching does not require NRIs to be physically present in India.
Is a medical examination mandatory for NRIs buying ULIPs?
The requirement of medical examination usually depends on the sum assured, age, type of policy and risk profile. Insurance companies might require NRIs to undergo a medical check-up before buying a ULIP.
