NRI’s would have in general be having this question: should I invest in India or should I not?
A mix of emotions ranging from love for their motherland and a sense of guilt for not giving back to it combine with personal choices to often lead to a wrong answer to the question above.
So, what’s it like?
NRIs typically fall into three broad categories:
1. Those who are working abroad and will come back.
2. Those who are settling abroad and do not plan to come back.
3. Those who are abroad, have no immediate plans to come back but ‘may’ decide to come back at some point.
1. Planning to return
This category of NRIs either have their families in India or plan to return to India with their families, have income and expenses in rupees and remit money into India regularly.
For these NRIs, investing in their home country for their goals and objectives is logical. ( this can be done in INR or USD terms)
However, they should note the following
Rather than just being over obsessed over currency conversion, they should do proper accounting’segregating for aspirations like education, wedding or retirement. For example, for NRIs planning for children’s higher education abroad should better be holding and investing in dollar-denominated (or foreign currency) assets to help them with such an expense.
Second, obsession for real estate- Due care should be taken while investing is real estate for returns as the real estate sector was down in the last years with rental yields went even below 2.5% and many NRI’s even struggled to find tenants for their properties.
Third, some NRIs who have held only NRE deposits all their life, retire with our considering returns just to save tax will find themselves in a position whether the inflation has real eaten to there savings by the time they return, They would then ay have to invest in risky propositions like PMS or Stocks.
So this category should be making a goal based plannings and make the money work effectively. They can consider investments in USD to meet there future expense in USD and also effectively invest in India and in USD in assets giving good returns for there future requirements in INR including retirement.
2. Settling abroad
These NRIs are permanently employed abroad in western countries 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. Their key goals — whether to buy a house or educate their children — will all transpire in their residing country.
What is their purpose to invest in India? If it is to provide some income for their parents or relatives, then invest in NRE deposits. Since NRE deposits and savings accounts are tax free, it is easy from a taxation perspective and by giving an authorization to make withdrawals the purpose can be met.
They can also 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. So it's better to keep just enough money in India to meet the requirements.
3. The ‘maybe’ category if you never had a clear idea or desire to come back to India, you probably will not! Do not have all your investments in India, if you do not have concrete plans to come back.
This category of investors should invest assuming they are settled abroad. They can look at dollar-denominated options.
The advantage of this is incase of deciding to settle abroad the investments would be enough and at the same time if planning to return to india in addition to the growth the investment would have made in USD additional 4.5% to 5% can be gained fro, USD to INR current appreciation as you can see in the chart below.
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.
For discussing more about investing in INR or USD please ping me.
Cheers,
Sreekanth
0503963193
Comments