Non-resident Indians (NRIs) often face unique challenges when investing in India; understanding common mistakes is the first step to avoiding them. Some of the common errors are overinvesting in real estate, neglecting account status updates, and underestimating tax implications. Many NRIs rely on ad hoc advice from friends or family, leading to poorly diversified portfolios and missed opportunities. Overemphasis on currency fluctuations, overexposure to debt securities, and lack of financial planning also hinder long-term growth.
Let us look at some of the common mistakes NRIs should avoid.
Investing Huge Money In Real Estate
NRIs tend to think that investing in Indian real estate is a good idea. “But if you think logically, property investment of NRIs should be need-based. In case you wish to come back, there is no point in having a residential property in India. Many NRIs do not wish to return or are still not clear, but they keep paying huge rents abroad but do not buy a house where they live. Most of these countries have relatively high liquidity in real estate but they want to buy many properties in India not abroad.” says Madhupam Krishna, Securities and Exchange Board of India (Sebi) registered investment advisor (RIA) and chief planner, WealthWisher Financial Planner and Advisors. Property like old times are not easy to manage and they generate below-par returns.
Thinking Of Retirement With Rental Income Of Indian Properties
Rental income tends to give a return of around two per cent – four per cent. This is usually less than the average inflation of five per cent – seven per cent in the country.
“So, your nominal value will increase but the real value will decrease and so your purchasing power will decline. Rental yields are further coming down. If you are generating a return of two per cent – four per cent on your property, it is best to sell it and buy another high-income growth asset which will give you a much healthier return,” says Krishna.
Not Understanding Tax Implications
Tax implications on capital gains, tax deducted at source (TDS) is a complicated process. NRIs often make the mistake of neglecting taxes. It is recommended that one works with a tax professional to navigate tax matters.
Consider tax obligations in India and your country of residence, leveraging treaties to minimize liabilities.
Not Investing Early
“Above all, begin investing early to harness the power of compounding, and periodically review your portfolio to adjust for changing circumstances. NRIs often tend to explore the global market without realizing the true potential of the Indian economy which is expected to grow at six to seven per cent,” says Lara. In fact, you can continue to invest in PPF if you have an account before becoming an NRI. Similarly, NRIs can also invest in NPS for retirement pensions.
Investing Only In NRE FDs
Interest on Non-Resident External (NRE) fixed deposits (FDs) are not taxable in India. However, investing only in NRE FDs would mean that your portfolio will not beat inflation. While FDs are safe, one should also have an equity exposure that one’s portfolio gives returns that have the potential to beat inflation.
