Indian tax laws provide for a very lenient calculation of the tax liability of long term gains. While long term capital gains are exempt from tax in the case of equities, in the case of real estate it is only 10% of the gains. Similarly, any money received from the insurance company or as interest on the NRE account is tax-free!

With many NRIs, investing in Indian rupees gives them an exposure to a different currency: a currency in which many of their long term dreams (like retirement) or short term commitments (supporting dependants) may be denominated. If an NRI plans to return within the next five years, he should plan to increasingly shift his exposure to Indian rupee. Leaving it to the last minute can mean a significant exchange rate risk.

With India emerging as an asset class on its own right and providing (and expect to continue providing) higher returns that the developed markets, many NRIs think that India would be a better investment opportunity than their new homeland!

Primarily for many NRIs, investing in India has an emotional angle. Sometimes, it is due to their familiarity with the investing instruments here or due to the need of some dependant here.