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India has been a hotspot for foreign investments for a long time, and it continues to be so. The country’s robust economy, favorable demographics, and proactive government policies make it an attractive investment destination for foreign investors, including non-resident Indians (NRIs). In particular, India’s private equity (PE) market has steady growth, with a wide range of investment opportunities available for NRIs. This growth has also opened up several alternative investment options for Non-Resident Indians (NRIs) who want to invest in India’s fast-growing economy.

Understanding the Private Equity Market in India

Private equity (PE) refers to investments made in privately-held companies or businesses that are not publicly traded. Private equity investments are made by private equity firms, which pool money from institutional investors and high-net-worth individuals to invest in privately held companies.

India’s private equity market has seen rapid growth in recent years, with a 27% CAGR from 2015 to 2020. The market size has increased from USD 6 billion in 2015 to USD 45 billion in 2020 (last recorded). This figure is expected to grow by roughly about USD 75 billion by 2025.

Role of GIFT City in NRI Investments

The emergence of GIFT City as a global financial hub has added to the appeal of investing in India’s private equity market and alternative investment options for NRIs. GIFT City, located in Gujarat, is India’s first international financial services center. It has been designed to cater to global investors looking to invest in India’s growing economy.

GIFT City offers a host of benefits to NRIs, including world-class infrastructure, a business-friendly environment, and a simplified tax regime. The city has been designed to provide a one-stop shop for all financial services, including banking, insurance, and asset management.

Additionally, GIFT City has a separate regulatory framework aimed at easing global investment processes. The city has its own regulator, the International Financial Services Centre Authority (IFSCA), which oversees and regulates all financial activities within the city.

The IFSCA has also introduced several measures to attract global investors to GIFT City. These measures include the introduction of a tax-friendly regime for offshore funds and the creation of a regulatory sandbox for testing innovative financial products.

Private Market and Alternative Investments

India’s private equity market offers NRIs access to investment opportunities in high-growth sectors such as technology, healthcare, and consumer goods. These sectors have witnessed significant growth over the years, and they offer high returns on investment. Private equity funds in India also invest in start-ups and early-stage companies that have the potential to become market leaders in the future.

NRIs can invest in the Indian private equity market through Alternative Investment Funds (AIFs) and Portfolio Management Services (PMS)

Both AIFs and PMS are regulated by the Securities and Exchange Board of India (SEBI). AIFs are investment vehicles that participate in non-traditional asset classes.

AIFs are divided into three categories – Category I, Category II, and Category III.

  • Category I AIFs invest in start-ups, early-stage ventures, social ventures, small and medium enterprises (SMEs), infrastructure, and other sectors that have a positive impact on the economy.
  • Category II AIFs invest in real estate, private equity, debt, and other sectors.
  • Category III AIFs invest in hedge funds, debt funds, and other sophisticated investment strategies.

NRIs can invest in alternative investment funds AIFs through foreign portfolio investment (FPI). The FPI route allows NRIs to invest in India’s capital markets through a registered FPI. The FPI must comply with SEBI regulations and file reports with the regulator.

On the other hand, PMS is an investment service provided by portfolio managers to high-net-worth individuals (HNIs) and institutional investors. PMS provides customized investment solutions for investors based on their investment objectives and risk appetite. PMS invests in non-traditional asset classes such as private equity, real estate, debt, and others.

NRIs can invest in PMS through a non-resident external (NRE) or non-resident ordinary (NRO) account. The NRE and NRO accounts are Indian rupee-denominated accounts that allow NRIs to transfer funds to India and invest in various instruments, including PMS.

Benefits of Private Equity Investments for NRIs

Private equity investments offer several benefits for NRIs, including:

  • Higher returns: Private equity investments typically offer higher returns than traditional investments such as stocks and bonds. According to a report by Bain & Company, private equity investments in India have generated an average of 15% internal rate of return (IRR) over the past five years.
  • Diversification: Private equity investments diversify an investor’s portfolio. As private equity investments are not traded on public markets, they are less affected by market volatility.
  • Exposure to emerging sectors: Private equity investments offer exposure to emerging sectors such as e-commerce, healthcare, and technology, driving India’s economic growth.

NRIs have a unique advantage in the Indian private equity market and alternative investment options. 

They have access to a wide range of investment opportunities across various sectors, tax-efficient investment options, and through the IFSC in GIFT City. India’s AIFs and PMSs provide customized investment solutions and offer high returns on investment. 

As India continues to be one of the fastest-growing economies in the world, NRIs have a significant opportunity to capitalize on the growth potential by investing in private equity and alternative investments. Having said that, it is essential for NRIs to carefully evaluate their investment options. They should seek professional financial advice before making investment decisions.

Rurash Financials can help you find a trustworthy financial partner for your investments in India’s private equity market and alternative investment options. Our team of experts with a sound legal background are qualified to provide top-notch trustee services, ensuring that your investments are carried out with the highest compliance standards and statutory requirements.

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