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    Are you an NRI who wants to return to India after retirement? Take note of these facts

    Synopsis

    Non-resident Indians (NRIs) should invest in financial assets such as mutual funds if they need to remit money back and forth between India, according to Harsh Roongta, Founder of Fee Only Investment Advisers. He advised against investing in real estate because it may be difficult to sell and repatriate outside of India. NRIs should also consider double taxation, paying in multiple countries if applicable, when assessing investments. NRIs can invest in life and health insurance policies in India, but the payout process may be cumbersome if families want to repatriate the money overseas.

    Harsh Roongta-1200ETMarkets.com
    Harsh Roongta, Founder, Fee Only Investment Advisers LLP, says NRIs need to clearly choose. If they need the money in the future, when they invest in India, they need to invest in financial assets where it is easy to remit the money back. “So, if you do a NRE PIS account, a portfolio investment scheme account or invest in mutual funds in the easily repatriable scheme that is called NRE Scheme, then should you need the money when you are overseas? “

    Roongta further says: “You may decide not to come back and may go overseas. That is much easier. I think financial assets make a lot more sense to non-resident Indians rather than something like real estate which is not easily sellable and then remittable back to their countries.”


    Today's discussion with you is dedicated to all the NRIs and especially those who want to come back to their homeland for retirement. What are the financial assets where an NRI can invest?
    Even before they get into assets and which kind of assets in India, you have raised a very pertinent point about NRIs who are planning to come back to India. Whether they want to come back to India or not is a decision that they need to continuously take because it has an implication in terms of what investments they would make and where they would make like any investor, whether resident in India or a person resident outside, they need to put their eggs in multiple baskets, including the global investment assets like global equity apart from Indian equity, Indian fixed income, real estate gold etc.

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    For NRIs, in what portion it will be in global equity or gold is as much a function of their resources and risk taking ability and also a function of how much they want to diversify outside India and it is not an easy decision. It is something that will be different, depending on their ultimate plans if they want to come back to India.

    Having said that, assuming that they want to come back to India, their ability to do investments in global investment products as well as in Indian assets is far better when they are outside India because those asset classes are easily available for residents to invest in that have to use the Liberalised Remittance Schemes (LRS). From July 1, the tax collection at source (TCS) is going to increase to 20%. That is not obviously applicable to NRIs when they invest overseas. So that is one advantage that they have over the Indian resident investors.

    Other than that, very clearly what they need to choose is if they need the money in the future, when they invest in India, they need to invest in financial assets where it is easy to remit the money back. So if you do a NRE PIS account, a portfolio investment scheme account or invest in mutual funds in the easily repatriable scheme that is called NRE Scheme, then should you need the money when you are overseas?

    You may decide not to come back and may go overseas. That is much easier. I think financial assets make a lot more sense to non-resident Indians rather than something like real estate which is not easily sellable and then remittable back to their countries.

    I am talking about real estate as an investment. Obviously, if they need to have a home in India, then there is no choice but to buy a property. But other than that, for investments, they should stick to investing in financial assets. Mutual funds are a great vehicle. It is very easy if you invest through the NRE route then it is very easy to sell and take that money back to whichever country you want to take it to.

    And you are talking about all kind of mutual fund categories? Can NRIs also invest in direct equity as in stock and what about your other traditional investment instruments, like fixed deposit or PPF? Can they put their money there also because you are recommending mutual funds, which is the right approach but then what about other options?
    As you rightly said, this ability to have an easy repatriation facility is across all mutual fund schemes. It is not only equity or only debt or anything. In any mutual fund, that option is easily available to them. If you look at the other asset classes, for example, you spoke about fixed deposits or PPF etc, now small saving schemes, especially the ones that give higher returns, higher fixed returns those are normally not available to NRIs.

    So PPF is not available to NRIs. You cannot open a new PPF account once you are an NRI, of course if you had a PPF account before you became an NRI, you can continue it till the next renewal date, which is 15 years or five years, depending on where they are in the PPF cycle. Beyond that, they are required to redeem it. But, after redeeming, taking it back is an issue. So I would say, even if you need fixed income, pick up the fixed income options in the mutual fund or they have the bank NRE FD, which at least is tax free in India. One other thing that I forgot to mention is that NRIs need to take into account the fact that among the assets, there might be some investments which are tax free in India, but they might have to pay the tax on that income in the residence country.

    Exactly. Which is why I wanted to understand if there is any double taxation or another tax implication, for NRIs across financial assets?
    Depending on which country they are in, NRIs must remember that they will probably have to pay tax in their country of residence. Most probably, they will get credit for the tax they pay in India that will be given credit provided India has a double taxation avoidance agreement with them and that is there with almost all the leading countries in the world today so they do not have to pay double tax in that sense.

    But if the Indian tax is lower than the tax that is applicable to them in their residence country, then they will have to pay only the differential. If in the residence country the tax is lower than the Indian tax, then they may not have to pay any tax in their resident country. The thing to remember is what is exempt here will not be exempt there. For people who have a PPF account, it is still valid. Now that interest on PPF is exempt here but it may not be exempt in their country of residence, they would have to account for it. Whatever tax they save here, they will effectively be paying there.

    So when they are evaluating any asset class, especially those that have a tax concession in India for that evaluation, they must take into account the tax of both countries put together. Normally, they do not end up paying double tax because of the DTAA but if you look at the exempt incomes, then that is a real problem because they may end up paying tax on those incomes in their country of residence.

    You just mentioned that they can invest across categories in mutual funds and the route can be SIP or lumpsum any kind of restriction over there?
    Yes. The route can be anything. Obviously there are no restrictions but in the US and Canada, not because of anything to do with mutual funds but because of their strict security laws, there might be restrictions. Very few mutual fund schemes might be available to them and there could be further restrictions on that as well.

    Since we are also focusing on retirement planning, which we are assuming they want to come back to India for and settle down, insurance plays a very important role. Can NRIs buy Indian life insurance or health insurance?
    Yes, of course, NRIs can buy life Insurance and health insurance in India and our term life rates in the country are among the best in the world. Therefore, there are a lot of NRIs who come and take a term plan here because the rates are attractive and we have the ability to give large value term life covers India has that ability to do that.

    The only issue one must remember is that in the event of death and the claim becoming payable, although it is not taxable here and most countries exempt death claims on life insurance policies but to repatriate, they have to go through that same process. The money will be paid in India if they want to remit it overseas, their family wants to remit that money overseas then that has to go through a process.

    Second, health insurance, is a great idea for NRIs, especially those who are reasonably sure they are going to come back to create a history in India because in health insurance, after you have had eight years of that policy, then from the ninth year onwards, the ability to deny a claim reduces significantly. Having the eight year history serves them not just in terms of creating history for the ninth year onwards, but during those eight years when they are coming to India, if they happen to fall sick, then that health policy will cover them as well. Most health policies in India cover hospitalisation expenses only in India, although now we are seeing some policies that cover hospitalisation expenses overseas as well.

    What if they do not want to come back and settle down in India but for the retirement corpus, they want to use Indian financial assets to accumulate the corpus and then maybe reinvest wherever they are situated. Is that possible?
    It is possible, as we said, they can do it but I think a bigger question is they have to decide what proportion they want in India, what proportion overseas. And they have an issue because typically for Indian assets, they will get Indian advisors; for their overseas assets, they will have overseas advisors and typically the advisors charge a fee based on assets under their control.

    For example, we would charge a fee on Indian assets to a client and that client when he is engaging with an advisor in another country, they would charge a fee based on assets invested there and there is a conflict of interest. Obviously for the India-based advisors, their fees depend on the investments in India and so there is a natural bias towards increasing the allocation or recommending an increased allocation to their country where they work as advisors. So this is a decision which is a little bit tricky for the NRIs to make.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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