Introduction
In the last two decades, India has witnessed massive industrial development. This progress has attracted significant foreign direct investments (FDIs), and many non-resident Indians (NRIs) are interested in investing in the country.
However, with many investment options, especially the two most prominent - real estate and stock market - it isn’t easy for NRIs to decide which is better. This post elaborates on the comparison between real estate and stock market investments, making it easier for you to choose.
Who is an NRI?
A Person of Indian Origin (PIO) or an Indian citizen living abroad qualifies to be recognised as an NRI. You are an NRI if your stay in India is less than 182 days but more than 60 days in a financial year. Once you satisfy this criterion, you are considered an NRI even if your stay in India is for 365 days or more in the past four financial years. You can also obtain an NRI status if you are deputed to an international country for six months or more.
Real estate vs. stock market investments
Here’s a brief comparison between real estate and stock market investments to help you choose what is right for you in India.
1. Return on investment (ROI)
The return on real estate investment is stable and appreciating. You can earn through rental income and value appreciation. But, the return may be slower than other investment avenues. On the other hand, stock markets can provide a faster ROI through dividends and capital gains. The returns can also be higher. However, due to uncertain market volatility, you may have to suffer a drop in investment.
2. Liquidity
Real estate investments aren’t as liquid as stocks. You will have to spend time finding a buyer, negotiating the price, and completing the legal formalities. The time taken to find a buyer depends on market conditions. On the other hand, stocks are highly liquid. You can buy or sell shares instantly. Online trading platforms allow you to execute transactions within minutes.
3. Flexibility
Real estate investments are less flexible than stocks. Time and effort are required to sell a property. Moreover, it can be difficult for small investors to diversify. Conversely, the flexibility with stock market investments is high, and the entry points are low. You can buy and sell different stocks or invest in mutual funds to create a diversified portfolio.
4. Emotional connect
When you invest in real estate in India, as an NRI, you feel a strong emotional attachment. Due to this emotional connection, your decisions can be influenced. On the other hand, stock market investments are intangible, eliminating the chance of emotional connection. Investing decisions in the stock market are based on market trends and financial analysis.
5. Taxation
Tax implications on real estate include registration charges, stamp duty, and capital gains tax. It is different for NRIs who purchase the property individually from those who buy via a resident. There are also applicable taxes on rental income. On the other hand, stock market investments are taxed based on the holding period. The taxes on securities held for less than a year (short-term gains) are higher than securities held for more than a year.
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Tips to keep in mind before investing in India
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You cannot use your Indian savings account after moving out of the country.
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You must convert your savings account to an NRO or NRE account before using it for trading.
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You can buy a property in India with a joint party who resides in India.
Which is better for NRIs? - real estate or stock market
Both the real estate and the stock market have unique advantages and challenges. Once you’ve gone through the comparison between the two, you can decide which one is more suitable for you. The choice depends on individual preferences, financial goals, and risk tolerance. Investing in real estate is beneficial because it offers control, emotional connection, and stability. On the other hand, stock market investments offer flexibility and liquidity. You can create a well-balanced investment portfolio comprising real estate and stocks. A mixed portfolio enables you to leverage their distinct strengths and mitigate risks.
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