By Lovaii Navlakhi, MD & Chief Financial Planner, International Money Matters
As an NRI, you are a ‘sought after’ person in India with everyone offering you many options to invest. There are real estate projects that are targeted primarily at NRIs and likewise many schemes in other product categories too.
So how do you decide which investment is suitable for you?
The guidelines to help you with this decision are no different than those in your resident country – if you have a financial plan and an asset allocation strategy that you are following, then stick to it and look at India for diversification and yes, definitely to give your wealth a bit of a boost.
The advantages of investing in India are what accrue to a developing economy with an enviably young population. So considering the Indian growth story of consumption and infrastructure, both equity and debt categories are bound to do well, especially in comparison to the developed economies of the West and countries like Australia and Singapore.
Coming to the type of products that available for NRIs to invest in India;
First is the simplest and easiest because essentially you do nothing –Interest Income
The RBI in a measure to support the rupee from depreciating further, had on December 16, 2011 deregulated the interest rates on NRE deposits and accounts and on NRO accounts. Subsequently, the RBI also freed up interest rates on the FCNR accounts.
As a result, the NRO and NRE savings accounts offer an interest of 4% p.a. and above – compared to developed economies, this is quite a competitive rate for an investment that is utterly safe. The term deposits depending on the amount and term offer 7% -9% on NRO and NRE Deposits and on FCNR deposits, about 3%-4% on USD deposits, 3%-4.5% on Euro deposits and 4%-5% on GBP deposits.
There are options in this category of investments in the form of corporate deposits, non-convertible debentures, government securities and PSU bonds issued in India, both on a repatriable and a non-repatriable basis. But the bond/debenture offers need to seek investment from NRIs – a number of recent PSU bond offers or non-convertible debenture offers did not open their gates to NRI investors.
To invest in stock markets in India, an NRI needs to do so through an approved Portfolio Investment Scheme (PIS) of a bank. For IPOs – initial public offers, they can invest directly. So they need a PIS only for investing in the secondary markets, or shares as well as debentures traded on the stock exchange both on repatriable and non-repatriable basis. Day trading however, is not allowed.
A word of caution; GDP numbers have been revised downwards and the industrial production numbers aren’t very encouraging either. Factoring in the global scenario as well to this, markets are going to be volatile and hence investments in equity should be in a staggered manner.
The mutual fund route of investing in equities does away with the technicalities of setting up a PIS and therefore offers convenience and ease of investment besides the other advantages of diversification, simplicity, liquidity and professional management. The systematic investment planning (SIP) option in mutual funds is a good way to invest rental income or other regular income into equities in a staggered manner and thereby overcoming the volatility of stock markets.
Debt Mutual Funds, both long term and short term have been extremely attractive during the high interest rate period in the last 2 years; especially for NRIs from the US with the rupee depreciating against the dollar. But interest rates are coming down so this is not going to be attractive for much longer.
Whichever account you use for investing in mutual funds, the proceeds on redemption will be moved into that account – NRO or NRE. So you need to think ahead whether you want these amounts to be repatriable or not and then invest using the specific account.
This has always been an attractive investment category for NRIs especially with the rupee crashing against the dollar since July 2011 and as homes in India became increasingly cheaper in dollar price terms. It also makes sense if one has plans to eventually come back to India or has parents/dependents who stay in India.
A point to note is that having a professional who can help you with investing in India with the knowledge and experience of rules, directives, tax issues, exchange rate fluctuations, banking formalities and equally important, familiarity with the rules in your resident country is a great help. And if this person/firm has a financial planning approach to investments and is not transaction oriented but would look at how the investment suits you, your requirements, goals and your overall portfolio, then all the better.
Investments that are Off-Limits:
Investments like PPF, senior citizen bonds, infrastructure tax saving bonds and post office schemes if done before becoming an NRI can be continued till maturity but fresh investments in these products as an NRI is not allowed.
Know Your Customer:
For most investments in India KYC norms have to be complied to. Various details such as identity, address, Gross Annual Income and other personal information need to be provided along with documented proof.
India is a preferred destination for many NRIs and with technology, it is an increasingly convenient and hassle free option especially if you have a good financial advisor based in India.