A new year is starting and is a wonderful time to assess or reassess the investments & goals. NRIs have less information about the investments that they have made in India. Hence you must draw some time to check your portfolio. This will help lessen & eradicate common NRI investment mistakes. Let us check the starting points where these investment mistakes by NRI may lie.

There are many mistakes NRI’s commit, but as it is said, if time has gone, has gone the glory! It is time NOW to check these Investment mistakes by NRIs.

Common NRI Investment Mistakes

Holding Savings Accounts as Residents

NRI’s continue to hold savings or current accounts as residents. Yes, this is still very common. The rules are very simple & clear. All SB/Current/FD/RD/Limits as a resident need to be closed or re-designated as NR Accounts.

India gives 3 options of accounts to operate from, as an NRI — NRE, NRO, and FCNR accounts. Click for Details

Separating Resident DEMAT & NRI DEMAT

For trading in stocks, NRI’s are not allowed to invest through their Resident Demat account.

A Portfolio Investment Scheme (PIS) will be needed for NRI’s to be able to invest in shares, ETFs, etc.

The resident DEMAT holding needs to be separated and converted to Resident-DEMAT. This means instead of the SB account your NRO bank account is linked. So when you sell shares purchased when you were a Resident, the money should go to NRO and not to NRE. You may also continue to invest your Indian Income (if any) through this Demat.

Avoiding NPS & PPF

These are very good schemes for NRIs.

PPF is allowed only if you have the account before becoming an NRI. You may continue to hold & contribute. You cannot extend it beyond 15 years.

Similarly, NPS can be used to invest in an Annuity scheme. This account is allowed to be opened & operated by NRIs & OCIs. It is one of the low-cost products in the world and can be used to accumulate for retirement pension.

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NRI’s investing huge amount in NRE FDs

NRE FDs are indeed tax-free in case your country of residence is not charging any tax on them. But still, FD rates are related to inflation. If you are earning just above inflation for a very long time your portfolio gets a low return.

We see NRI investors holding FDs in crores and a very small amount in Equities. I am not pitching that safety should be compromised. I am saying that one must invest in equities as per his risk appetite & time horizon. Long-term goals like retirement or a kid’s education can be dealt with some amount of equity investments.

Investing Huge Money in Real Estate

NRIs, when coming back on visits especially, keep days when they will scout for Real Estate.

It is sentimental plus FOMO.

You wish to be connected and land/property seems to be a good asset.

History & our parents also remind us that you don’t have standing until a piece of land has your nameplate.

I have seen some NRIs complaining that their spouse (mostly females) contradicts them (investing in financial assets) as they think for STABILITY you need a house ASAP.

But if you think logically, property for NRI should be need-based. In case you wish to come back, there is no point to have 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 not buy a house where you live. Most of these countries have relatively high liquidity in real estate but they want to buy many properties in India not abroad.

Property like old times are not easy to manage and they generate low returns. Ask any Gurgoan, Lucknow, Kochi broker and they will tell you about the correction that has taken place in the last 3-4 years.

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Thinking of retirement with rental income in India

Rental income tends to give a return of around 2% – 4% varying accordingly. This is usually less than the average inflation of 5% – 7% 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 2% – 4% on your property, it is best to sell it and buy another high-income growth asset which will give you a much healthier return.

For eg, buying a warehouse land and leasing it or renting it to industries, generally tend to give a higher return than buying an apartment and putting it on rent.

Misunderstanding the tax implication

Tax, is ever-changing, needs a lot of understanding. Understanding capital gains, TDS are a hell lot to process. Most NRIs make the mistake to shun or procrastinating on tax issues.

It is better to work with a tax professional so that you have the benefit of utilizing tax advantages. Also, transactions like money transfer, gifts, buy or sell need full understanding & compliance.

Postponing your investments for later dates & years

We get many calls when an NRI wishes to return & thinks of making/starting investments. This is a huge time waste as the most important element of returns is compounding and compounding is a time-driven factor.

The general excuses are: I didn’t have money or I didn’t understand investments.

These are genuine but remain a reason for all! Investments should be there at all life stages.

I would say you should have a plan from day one! A Financial Plan. Most think this is a one-time activity. The beauty of this concept is that it forces you – to think the unthinkable. Many elements like family planning & retirement are still not talked about at large. But financial plan foresees the requirement. Try it.

You will love to read this too Understanding Overseas Citizen of India (OCI)

Missing Important documents like WILL or POA

It is not compulsory to have a will but it is always a must for NRIs.

NRIs have financial and physical assets in different countries across the globe. These documents allow you to decide the best possible transfer of assets to your nominee.

It will save any argument related to the inheritance of the assets in families.

Bonus Advice

Common NRI Investment Mistakes – The Ultimate Mistake: Do not rely on your friends and families/relatives regarding investments at all.

Most of LICs & ULIPs, multiple incomplete flats, and barren pieces of land, Gold ornaments, and Company Fixed deposits are “gifts” (portfolio burden) of improper planning and sometimes because of the greed of the intermediary. You buy ONLY when you NEED.

That’s smartness.

Thinking about how to get started to avoid Common NRI Investment Mistakes?

Just need to make up your mind and get it all planned by a financial advisor. Starting point – go for a Financial Plan.