India is one of the preferred destinations for NRIs to invest in. Apart from the emotional attachment of investing in ones’ motherland, it is also one of the fastest growing economies. According to the Reserve Bank of India’s latest monthly bulletin, there were inflows to the tune of $3863 million in NRE deposits during the period April to November 2017, against an outflow of $11,198 million in the corresponding period in 2016. This is an indication of increasing interest among NRIs in India.
But do NRIs get the right advice about where to invest their hard earned money? How do you choose the asset class that is best suited to meet your needs? Are the investment options available for resident Indians the best ones for you too? Can you follow a Do It Yourself approach or do you need a dedicated financial advisor?
Fixing your goal
As an NRI it is important to look at financial goals on a long term basis. Whether you decide to return to India post retirement and whether you plan to take up employment or start a business of your own are decisions that will determine how to plan your finances. Should you invest directly or invest in a venture fund?
You may wish to build a house or donate money to the school in your village. Saving for your children’s education is another important financial goal for most NRIs. Remember that the fees for NRI students are higher than that for Indian resident students. So, make allocation accordingly.
Lack of information, miss-selling
One of the biggest hurdles NRIs face is the lack of information about the investment options. Most of them depend on their banks’ NRI banking teams for their investment decisions. In such cases there is a likelihood of the banks pushing their own products, which may not necessarily meet your requirements. For instance, expensive Unit Linked Insurance Plans are often sold as investment products. But investors end up paying huge premiums and returns are often very low.
Or your bank RM could sell you a mutual fund which is not the best in the category merely because the bank has tie–up with the fund house or the fund offers the distributor higher commissions. These are some problems that NRIs often face.
Another drawback of investing through your bank is the servicing post the investment. Is your portfolio monitored regularly and do you get regular updates about the portfolio’s performance? Should you switch your fund if it is underperforming?
While these problems are faced by resident Indian investors too, for NRIs it is perhaps a bigger problem because they are not physically present in India to follow up on their investments. Hence it is important to have a dedicated advisor who understands your needs and is available to answer all your queries.
Choosing the right investment instrument
Where you choose to invest will depend on your goal and the time for attaining the goal. Based on that as well as your risk appetite it is advisable to have a mix of both debt and equity investments. As NRIs there are some procedural rules to follow while investing in direct equity and mutual funds, which an advisor can guide you.
Real estate is another asset class favoured by NRIs. Here again, depending your status (whether NRI or Overseas Citizen of India) your advisor guide you on whether you can invest in commercial or residential estate, agricultural land etc.
Today NRIs can also look at instruments like REITs, which allow exposure to real estate while addressing typical risks associated with it such as opacity in pricing and delay in projects, etc.
Tech to the rescue
Fulfilling Know Your Customer (KYC) norms can sometimes be a big hurdle given the number of documents required for address proof, identity proof etc. But today there are online intermediaries that can help you do your KYC electronically. This is where digitisation has played an important role. It has reduced the need for documentation to a large extent thereby making it easier for NRIs to invest in India. The turnaround time for investments too has reduced considerable thanks to digitisation. No longer do NRIs have to spend a major part of their visit to India waiting in bank branches or mutual fund offices to submit documents and following up on their investments.