The common pitfalls and mistakes that NRIs must avoid while investing in India

Align Your Finances with RBI Regulations.

Krishna Makhariya

Many non-resident Indians (NRIs) see India as an attractive investment destination for financial as well as real estate investments.

However, they have to navigate common pitfalls such as delays in KYC compliance, foreign TIN requirements and avoid certain common errors such as focusing solely on tax-free products, trusting unregulated participants, and skipping estate planning or legal compliance. For such NRIs, especially those who are returning to India, here’s a structured checklist for streamlining their investment journey.

1. Align your finances with RBI regulations

The first step upon returning to India is to ensure compliance with the Reserve Bank of India (RBI) guidelines. Convert your Non-Resident External (NRE) and Non-Resident Ordinary (NRO) accounts into resident accounts to access domestic financial products. Additionally:

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• Close your Portfolio Investment Services (PIS) account and switch to a regular brokerage or a demat account for equity investments.

• Convert your Foreign Currency Non-Resident (FCNR) account into a Resident Fixed Deposit (RFD) account or a Resident Foreign Currency (RFC) account if you wish to retain funds in foreign currency. However, once your status changes to that of a resident Indian, any interest earned on these accounts will be subjected to Indian tax laws.

2. Diversify your portfolio: blending global with local

While global markets may have been your focus, transitioning back to India opens up opportunities in high-growth sectors. Consider the following options to build a balanced portfolio:

India’s equity markets continue to thrive, fuelled by domestic and foreign investor optimism despite global uncertainties. Long-term investments in high-growth sectors such as technology, green energy, and consumer goods can offer significant returns.

Alternative Investments

Alternative Investment Funds (AIFs) offer access to exclusive markets such as private equity, real estate, hedge funds, and distressed assets. With a minimum investment of Rs 1 crore for NRIs, AIFs are suited for those with a high-risk appetite seeking superior returns.

Portfolio Management Services (PMS)

Portfolio Management Services (PMS) are ideal for investors preferring professional wealth management. With a dedicated portfolio manager, your portfolio is customised to align with your financial goals, risk appetite, and investment horizon. SEBI mandates a minimum investment of Rs 50 lakh to open a PMS account, making it a strategic solution for sophisticated investors.

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3. A financial adviser

A financial adviser ensures that your financial plan aligns with your evolving priorities, creating a personalized investment strategy based on your unique goals and life stage.

4. Plan for currency conversion and repatriation

Managing currency conversion and repatriation is a critical aspect of financial planning for NRIs returning to India.

To optimise returns:

• Time your currency conversion strategically to benefit from favourable exchange rates.

• Explore multi-currency funds to hedge against currency risks while maintaining global market exposure.

However, GIFT City Funds serve as a comprehensive one-stop solution for NRIs by offering streamlined access to diverse financial products like AIFs, PMS, and global investments, all under one roof. These funds, launched under the Gujarat International Finance Tec-City, enable investments in global financial markets, including equities and bonds, while ensuring ease of currency repatriation.

One of the key advantages of GIFT City funds is the ability to repatriate invested funds fully without restrictions, providing seamless liquidity. These funds also offer tax efficiency by operating in jurisdictions with lower capital gains tax rates and are exempt from TDS. Designed to meet international financial standards, GIFT City funds prioritise investor protection and transparency, making them an attractive option for NRIs seeking global diversification within a robust regulatory framework.

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GIFT City embodies a modern financial ecosystem, empowering NRIs to manage their wealth efficiently while taking advantage of India’s growth potential.

India’s financial ecosystem, bolstered by initiatives like GIFT City and bilateral trade agreements, has become a beacon of growth and stability for NRI investors. These forward-looking policies promote transparency, streamline investments, and align domestic markets with global standards, creating an ideal environment for building a diversified and future-ready portfolio.

The author is Executive Director and Head of Research at iVentures Capital.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.