NRIs need to look before they leap

The task of managing money and investing accurately to consistently get the best returns has stumped even the most astute investment bankers who handle millions of investment dollars for their clients around the world.

It is no surprise that the process of investing is a huge challenge for the millions of Non-Resident Indians or NRIs who are looking to build a nest egg for their family and that ever-elusive retirement in India.

Statue of the trade Bull in front of BSE Mumbai. Photo courtesy: Wikimedia.

The financial prominence of NRIs has grown rapidly in the last decade as India continued to liberalise its economy and Indians are more recognised and accepted globally as a community that was naturally inclined to contribute positively to the prosperity and overall social well-being of their country of residence.

Their increased stature and the community's tendency to focus on investing and building a savings backup in India, has also made them targets of a myriad number of schemes, products and plans.

NRIs are now being pulled in multiple directions and bombarded with information about investment plans that paid juicy returns upfront but also had in them, in very small print, hidden risks with the potential to wipe out their hard-earned savings.

They are also having to reckon with a bureaucratic red-tape that continues to envelop financial markets and investments in India - even after steps taken recently by regulators to simplify procedures and increase awareness about market risk.

The need of the hour is financial literacy and the right kind of it.

Being aware and educating yourself about the risks of plans offered to you before making that possibly life-changing investment decision has become critical in these times of volatile markets, political uncertainty and rising interest rates.

NRIs have to understand that despite their overwhelming attraction for the yellow metal, not all that glitters is gold in this day and age.

According to the Reserve Bank of India, NRI deposits stood at USD130.41bn at the end of March 2019 and were up from USD126.2bn a year earlier. The bulk of this money is in non-resident (external) accounts followed by foreign currency non-resident bank deposits and non-resident ordinary accounts.

Though there is no study that directly points to this a majority of these account holders probably are still discovering the implications of having these accounts and their operational restrictions.

According to the Reserve Bank of India, NRI deposits stood at USD130.41bn at the end of March 2019 and were up from USD126.2bn a year earlier. Photo courtesy: Flickr/bradipo.

One could easily bet, and win, that many of these account holders are still unclear whether their money was in the right place and gave them the flexibility they needed to execute their investment plans and strategies in India.

NRIs could be paying more taxes and bank fees on an NRO account because they used that money for purposes considered taxable and they might not know how to avoid being double-taxed (taxed in India and their country of residence).

The NRE account may have a repatriation limit which NRIs may be probably unaware and there needs to be an understanding of the tax implications if an NRI leaves the country of residence and comes back to India.

FCNR accounts may look attractive especially with the Indian rupee rolling around against the US dollar amidst the tariff tiff between the US and China and election uncertainty in India.

But they carry significant risks because a sharp currency depreciation could easily wipe those savings.

NRIs are one of the biggest investors in Indian real estate but again were all the right questions asked - about prepayment penalties, implications of fixed and floating rates to name a few.

So NRIs need to hold on before pressing the button to remit money back to India or say yes to that friendly financial adviser with that amazing insurance plan that promises to protect for millions with a small upfront payment.

What is the lock-in period, how much is the annual interest rate, what are the risks and what is the guarantee of getting money back if financial markets turn for the worse - are some questions that need to be asked.

Yes, it is complicated and tedious but not asking questions could prove to be painful if you have made a decision based on hearsay or a hunch, and not your own homework.

The solution is simple - NRIs should not back away from doing the necessary homework before investing the one thing that is the main reason for them slaving away at that desk in a foreign office - MONEY.

Connected to India’s mission is to build that information base that will help you in the education process by increasing your understanding of the people, institutions behind the products, the risk inherent in these instruments and the realistic levels of returns you should expect. Knowledge is king for us and we hope to make it easier for you to make the right investment decisions to secure your today and tomorrow.

Shankar Ramakrishnan, connectedtoindia.com

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