NRIs – Not all of you should be investing here!

Share on whatsapp
Share via Whatsapp
Share on twitter
Tweet it out
Share on facebook
Share on FB
Share on linkedin
Post on LinkedIn

If you are reading this with the intention of knowing where NRIs should invest, you will be disappointed. But I can tell you this: no seller of investment products in India is going to discuss this. I am going to discuss whether NRIs should be investing at all in India under certain circumstances, and where they should not be investing.

NRIs who approach us for investment options broadly fall under the following categories: one, those who are abroad on an assignment and will come back. Two, those who are settled abroad and do not plan to come back. Three, those who are abroad, have no immediate plans to come back but ‘may’ decide to come back at some point. The third category is the problem category and account for the majority, unfortunately.

Home, sweet home?

Planning to return

Now, the first case is simple. this category of NRIs either have their families in India or plan to return to India with their families, have income and expenses in rupee and remit money into India regularly.

For these NRIs, investing in their home country for their goals and objectives here is logical. However, I have trouble with their following habits: First, while they obsess over currency-conversion they fail to do the ‘mental accounting’ of segregating for aspirations like education, wedding or retirement. For example, many of the NRIs let their child continue education abroad. In this case, they would have been better off holding and investing in dollar-denominated (or foreign currency) assets to help them with such education expense. A proper goal-planning exercise will help decide where to invest in.

Second, their obsession for real estate makes one wonder whether distance from one’s own land compels them to own a piece of their motherland in bond paper. This craze has partly come down in the last few years as real estate sector was down, and rental yields went even below 2.5% and NRIs struggled to even find tenants for their properties.

Third, some NRIs who have held only NRE deposits all their life, retire, come back and then entirely shift to high risk products like PMS, AIFs equity funds or stocks. They do this since NRE deposits lose their tax-free status once they become residents.  Here, I must make a special mention about NRIs from the Gulf as opposed to those from US or other western countries. Having paid little to no tax in India (NRE deposit) or the Gulf almost all their lives, their only overriding criteria is about investing where the tax is less. But upping risks suddenly, especially, post retirement, can leave them in trouble unless they are clear they have other sources of income.

Settled abroad

These NRIs are permanently employed abroad (say US/Canada/UK/Australia) and settled there with their families and do not plan to come back to India. In this case, typically, they may have their aged parents or siblings in India. Other than that, there is little at stake locally. Their key goals – whether to buy a house or educate their children will all transpire in their residing country.

The only thing I wish to understand from such investors is what is their motivation to invest in India? If it is to provide some income for their parents or relatives, then investing in NRE deposits, having an NRE account and providing power of attorney (PA) for somebody locally to withdraw the money for their needs is a simple and efficient way to achieve this. Since NRE deposits and savings accounts and tax free, it is easy from a taxation perspective.

If the NRI’s intention is to keep money locally to serve local needs (even when you visit), this should suffice. Investing in property or other assets and the hassle of repatriating it later and losing on rupee depreciation are all avoidable. Participate in the Indian markets but know this: The MSCI India index delivered 9.5% in rupee terms in the past 10 years but returned just 5.4% in dollar terms. Please don’t tell me the Nasdaq 100 index did not deliver this! Use Indian markets to diversify, yes. But know that Indian markets are great only if the NRI eventually plans to use the money in India.

It is best to keep Indian finances and taxes simple, if the intention is not to come back.

Also, for the person residing locally (especially elders), managing the NRI’s finances, maintenance of property and making sure there is a PA for every single act may result in not-so-cordial relationships!

The ‘maybe’ category

This category of NRIs are the ones in a perennial dilemma – with their life and their money. I wish to tell them this: if you never had a clear idea or desire to come back to India, you probably will not!  Do not ‘concretize’ your investments in India, if you do not have concrete plans to come back.

I would say this category of investors should simply invest assuming they are settled abroad. They can look at dollar-denominated options to invest even if they are not in US. Please remember the long-term depreciation of the rupee against the dollar is 4-5% annually. Even if they decide to eventually come back, they would have earned 4-5% by simply holding in dollars instead of the rupee.

However, I am not complaining about them. For it is this category of investors who are doing their bit to fill our forex reserves. More dollars our way please!

This article first appeared in The Hindu dt. June 2, 2019

Share on whatsapp
Share via Whatsapp
Share on twitter
Tweet it out
Share on facebook
Share on FB
Share on linkedin
Post on LinkedIn

Please note that any specific queries on any of our recommendations will be answered ONLY through email. If you are a subscriber, please mail contact@primeinvestor.in.  Only general queries or discussions will be answered through the comment section of the blog. For full details, please refer to this post – How to communicate with PrimeInvestor.

3 thoughts on “NRIs – Not all of you should be investing here!”

  1. I am coming under Maybe category. live in Germany.
    As of now i am keeping my earnings EUR convert into NRE INR account.
    i understood from your article that USD is strong against INR.
    In my case , Will it be worth to keep currency in EUR ?

    1. If you are in any place other than US/Canada, your investment restrictions in India are far lesser. That is sufficient reason to spread your investments between India and Euro zone. I would not be able to give any prediction on the currency but what I can say is that in its own export interest, it is healthy for India to allow its currency to depreciate against the major countries it is exporting to. Euro zone is one such. The answer is – diversify between the two but make sure your money in India is repatriable if you are in the ‘maybe’ category.

      Thanks, Vidya

Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Register for FREE!

Gain instant access to more PrimeInvestor articles, researched products, and portfolios

The essence of PrimeInvestor

Register for FREE!

Gain instant access to more PrimeInvestor articles, researched products, and portfolios

Legal Disclaimer : Redwood Research (with brand name PrimeInvestor) is an independent research entity offering research services on personal finance products to customers. We are a SEBI registered Research Analyst (Registration: INH200007478). The content and reports generated by the entity does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. All content and information is provided on an ‘As Is’ basis by PrimeInvestor. Information herein is believed to be reliable but PrimeInvestor does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. The services rendered by PrimeInvestor are on a best effort basis. PrimeInvestor does not assure or guarantee the user any minimum or fixed returns. PrimeInvestor or any of its officers, directors, partners, employees, agents, subsidiaries, affiliates or business associates will not liable for any losses, cost of damage incurred consequent upon relying on investment information, research opinions or advice or any other material/information whatsoever on the web site, reports, mails or notifications issued by PrimeInvestor or any other agency appointed/authorised by PrimeInvestor. Use of the above-said information is at the user’s own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. All intellectual property rights emerging from this website, blog, and investment solutions are and shall remain with PrimeInvestor. All material made available is meant for the user’s personal use and such user shall not resell, copy, or redistribute the newsletter or any part of it, or use it for any commercial purpose. PrimeInvestor, or any of its officers, directors, employees, or subsidiaries have not received any compensation/ benefits whether monetary or in kind, from the AMC, company, government, bank or any other product manufacturer or third party, whose products are the subject of its research or investment information. The performance data quoted represents past performance and does not guarantee future results. Investing in financial products involves risk. Mutual Fund Investments are subject to market risk, read all scheme related documents carefully. As a condition to accessing PrimeInvestor’s content and website, you agree to our Terms and Conditions of Use, available here. This service is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Redwood Research or its affiliates to any registration or licensing requirement.

• Aditya Birla Mutual Fund • Axis Mutual Fund • Baroda Mutual Fund • BNP Paribas Mutual Fund • BOI AXA Mutual Funds • Canara Robeco Mutual Fund • DSP Mutual Fund • Edelweiss Mutual Fund • Essel Mutual Fund • Franklin Templeton Mutual Fund • HDFC Mutual Fund • HSBC Mutual Fund • ICICI Mutual Fund • IDBI Mutual Fund • IDFC Mutual Fund • IIFL Mutual Fund • Indiabulls Mutual Fund • Invesco Mutual Fund • ITI Mutual Fund • Kotak Mahindra Mutual Fund • L&T Mutual Fund • LIC Mutual Fund • Mahindra Mutual Fund • Mirae Asset Mutual Fund • Motilal Oswal Mutual Fund • Nippon India Mutual Fund • PGIM Mutual Fund • PPFAS Mutual Fund • Principal Mutual Fund • Quant Mutual Fund • Quantum Mutual Fund • Sahara Mutual Fund • SBI Mutual Fund • Shriram Mutual Fund • Sundaram Mutual Fund • Tata Mutual Funds • Taurus Mutual Funds • Union Mutual Funds • UTI Mutual Funds • Yes Mutual Funds

Equity: Large Cap Funds | Mip Cap Funds | Large And Mid Cap Funds | Small Cap Mutual Funds | Contra Mutual Funds | Dividend Yield | Focused Mutual Funds | Find Top Index Funds | Best Sector Funds | Thematic Mutual Fund | Best Value Mutual Funds | Equity Linked Savings Scheme | Tax Saving Funds
Debt: Banking And PSU Funds | Corporate Bond Funds | Credit Risk Funds Mutual Funds | Dynamic Bond Funds | Floating Rate Funds | Gilt Mutual Funds India | Find Top Liquid Funds In India | Long term debt funds | Low Duration Funds Debt Funds | Medium Duration Debt Funds | Medium To Long Duration Funds | Money Market Debt Funds | Overnight Debt Funds | Short Duration Debt Funds | Ultra Short Term Debt Fund
Hybrid: Aggressive Hybrid Funds | Arbitrage Mutual Funds | Balanced Advantage Mutual Funds | Conservative Hybrid Funds | Dynamic Asset Allocation | Equity Saving Funds | Multi Asset Funds | Multi Asset Allocation

Scroll to Top
Login to your account