Non-resident Indians (NRIs) often invest in high-growth areas, such as technology, renewable energy, and consumer products in India to participate in the country’s emerging economy.
Many NRIs view India as a great place to invest in, especially in financial instruments and real estate. However there are some common problems they need to watch out for before they start investing in India.
The common problems include delays in completing know your customer (KYC) requirements, dealing with foreign tax identification number (TIN) rules, relying too much on tax-free products, trusting unregulated investment options, and overlooking important matters like estate planning or legal requirements. For NRIs, especially those planning to return to India, here are some common mistakes they should avoid while investing in India.
Not Adhering To RBI Regulations
The Reserve Bank of India (RBI) has put in place some regulations that all NRIs must comply with.
To start with, they need to convert their non-resident external (NRE) and non-resident ordinary (NRO) accounts into resident accounts for accessing domestic financial products. They also need to close their portfolio investment services (PIS) account and switch to a regular brokerage or dematerialised account for equity investments in India.
Additionally, they must convert their Foreign Currency Non-Resident (FCNR) account into a Resident Fixed Deposit or Resident Foreign Currency account for retaining funds. Additionally, NRIs must note that any interest earned on such accounts will be subject to Indian tax laws.
Not Diversifying Portfolio
Returning to India can offer opportunities in high-growth industries, such as technology, renewable energy, and consumer products.
However, NRIs must diversify their portfolio and invest their money in various assets in order to balance both risks and rewards. Additionally, NRIs can also consider availing portfolio management service (PMS) which offers professional wealth management with a dedicated portfolio manager.
Not Seeking professional Help
A reliable advisor is important for NRI investors in India to navigate the difficulties of investing. They can provide guidance on tax laws, legal requirements, and investment options. An experienced advisor can also help with KYC processes, ensure compliance with foreign TIN requirements, and suggest tax-efficient strategies. With expert knowledge, advisors help NRIs avoid costly mistakes and maximise returns. They can also keep NRI investors updated with changing regulations, ensuring that their NRI clients make informed decisions for a secure financial future in India.
Avoiding Repatriation and Currency Conversion
Managing currency conversion and repatriation is crucial for NRIs returning to India. To optimise returns, it is important to time currency conversion strategically and explore multi-currency funds.
GIFT City Funds, launched under the Gujarat International Finance Tec-City can offer streamlined access to diverse financial products like alternate investment funds (AIFs), PMS, and global investments. These funds enable investments in global financial markets, including equities and bonds, while ensuring ease of currency repatriation. GIFT City funds are tax-efficient, operating at lower capital gains tax rates and are exempt from TDS.
India's financial system, through initiatives like GIFT City and trade agreements, has become a stable hub for NRI investors, improving transparency, making investing easier, and aligning Indian markets with global standards.
