An increase in demand and opportunities for Indians all across the world has changed the dynamics for Indians globally. The Indian skill and culture are increasingly being gracefully accepted and appreciated all over the world. With all this, comes economic success for most Non-Resident Indians (NRIs) driving the need for a multi geographical approach towards managing their wealth.
This is about the need (why?), the opportunity (where?), and the path (how?) to look at reasons, options, and approach towards investing in India for NRIs.
Why Should NRI’S invest in India
I being an Ex-NRI know a good deal about the investment needs of NRIs outside of their country of residence or in their country of origin (India). Majority of these are driven by personal situations and life decisions rather than investment opportunities outside their country of residence.
Some of the most common situations and life decisions that drive NRIs to invest are:
- Settling in India permanently in the foreseeable future
- Creating an income fund for parents or in-laws or other family members
- Buying a house for parents or in-laws or other family members
- Investing in India to capture the economy’s growth potential
- Diversifying wealth exposure
For an NRI to settle in India permanently in the foreseeable future is the most critical life and investment decision to be taken. For a smooth transition back to their country, they need to think about many financial goals that may not be a normal phenomenon outside of India (public education till high school is of good quality and free in many countries unlike in India where private education has high quality and price).
Many NRIs want to set up their own business in India which requires significant capital and volatile earnings for a short period of time until their business ventures turn profitable.
Even if one decides to return to India and settle, they may not get a lucrative job opportunity or a business platform in their hometown which creates another financial goal of buying a house to live and retire.
The retirement fund is a common financial goal for every one of us irrespective of where we live. A significant point to remember here is that if we decide to settle in India, our retirement fund should have Indian investments so that Indian inflation is easily beaten.
Many NRI parents do not have the option to live with their children fully due to many reasons like visa constraints or climatic suitability or preferences. The majority of the Indian culture has children taking care of their parents as a normal and noble responsibility. This makes it very critical for NRIs to create an investment portfolio that generates regular income for their parents or in-laws or any other dependent family members. This may also include buying them a house to live if their family did not have an owned house before.
India is poised to become the third-largest economy this decade which is a huge investment opportunity for many investors. NRIs have easier access to Indian investment markets as well as significant knowledge about the country which gives them an edge. This is also a diversifying opportunity for many investors.
Like any other domestic investor, NRIs can invest in Indian capital markets (equity and debt), Real Estate (residential and commercial), and commodities (gold and other commodities). The only difference is that if the money is taken back to their resident country, there is a significant currency risk involved here. For example, an NRI might invest today $1,00,000 @ Rs. 75 per dollar (Rs. 75,00,000 invested). After 10 years at 12% compounded return the Rs.75,00,000 investment becomes Rs. 2,32,93,861 but if the exchange rate of the currency is Rs. 100 per dollar, the investor would get back $2,32,938 giving a return of 8.82% only. This risk cannot be ignored and can travel both ways.
An NRI might be planning to buy a house priced at Rs. 1,00,00,000 today with inflation expectation of 6% after 5 years. If the NRI decided to invest in a more matured economy like the USA or the EU, it might not beat the inflation of 6% without taking added risk versus a fixed deposit with zero risks in India yields you 5.7 – 6% currently.
The golden rule of NRI investing is to Invest in the geography where you will use the wealth.
The asset class or investment option depends totally on the financial goal and the risk profile of the investor. There is a significant risk of currency valuation which domestic investors need not worry about.
As mentioned before, being an Ex-NRI makes me very complicated compliance paperwork filled with rules and regulations. NRIs are used to technologically driven simple and transparent systems of investments. Thankful to the developments in the last 6 to 8 years, the Indian investment ecosystem for NRIs is becoming simpler and easier to access.
The path of investing is mainly determined by two factors
- Financial goal beneficiary
- Preference of the investor
The beneficiary of a financial goal (NRI versus family member) is a basic thing to consider while deciding a path of investing in India. For example, if the financial goal is to generate income to fulfill family needs in India, it is logistically and tax-wise easier to invest money or buy assets on their name.
The preference of the NRI plays an equal role in making this decision as some of them prefer having all the investments in their name which makes it easier for them to track, handle and bring the money back to their residence country if needed. Many NRI parents are old and cannot regularly track their investments.
Investing in India can be done via mutual funds, direct equities, Insurance products, physical Real Estate, bank deposits, and bonds. All these investments can be made on the NRIs name or their family member’s name (preferably parents). India has a double taxation avoidance treaty with many countries which makes it easier for NRIs to invest in India.
For any NRI investor, we feel an Investment advisor is a necessity for Indian investments due to the complexity and the effort involved in managing wealth outside the geography they live in. An advisor that can not only understand the priorities and preferences of NRIs but also has experience in global investment markets would be an ideal option to choose.