New Delhi
Rehan Sharma is a young NRI who works at a prestigious bank in Dubai. He is able to save a good amount from his salary every month. “Although it makes a lot of sense to invest in my home country, I do not have an idea about the best investment options,” he says.
Sharma is in the same predicament as thousands of NRIs who are looking for answers how to make good use of their savings by earning profits on them rather than getting duped by unscrupulous investment deals.
Like many, he has been sending money to his family, comprising his parents, who are themselves well off. The Reserve Bank of India (RBI) estimates that there are about 25 million Indians living outside of India who remit about $70 billion (Dh257 billion) to India annually.
The RBI 2011-12 data showed NRI deposit flows rising at least 200 per cent to $11.9 billion. The reasons could be diverse – ranging from property purchases to sending money to dependents.
The huge increase could also be attributed to the Government of India simplifying rules and regulations applicable to NRIs and encouraging them to invest in their home country. With the Indian economy on a long-term curve, the NRIs need to look at multiple investment options to park their funds. Since there are quite a few options, the challenge is to find the right one that not only offers flexibility, but also provides good returns.
Avinash Kumar, an investment expert, says: “An investor looks for a certain element of assurance that ensures he will get back the money he has invested even in some unforeseen market event. Here it is important to understand that a higher level of safety comes with a ‘cost’, so he will have to compromise on the returns front. This means an investor cannot expect higher safety with higher returns. Returns offered by low risk investments will also be low.
“Keeping this in mind, the best option is to have a mix of asset classes with varying degrees of risk. This would ensure both safety and returns.”
The top investment options in the country include bank fixed deposits (FD). This is considered to be a safe investment option and generates stable income.
Bank FD comes with a fixed tenure/lock in of investment, which varies from a minimum of 15 days to five years and more. The period of ideal investment, however, is 6 to 12 months. Even though early withdrawal is possible, it comes with a penalty. So, it is advisable to plan this investment keeping the sudden financial needs in mind. Senior citizens get special interest rates on these.
National Saving Certificates (NSC), meanwhile, are considered one of the most secure options backed by the government, NSCs can be obtained from post offices.
The lock-in period is six years and while the minimum amount is Rs100 (Dh6.20), there is no upper limit. The scheme comes under Section 80 C, hence the investor can obtain tax deductions.
Insurance schemes
Insurance schemes are another option. The government owns the largest life insurance company (LIC) and NRIs have the privilege of investing in it without any limit on the cover. However, the individual has to be present in the country while taking the insurance.
Some companies offer foreign currency denomination policies and allow the investor to pay the premium in foreign currency.
If those aren’t for you then there are opportunities in gold, stocks and mutual funds. While Indians are known for their obsession with gold, not many are aware about investments in gold coins and bars. Investments in gold shares can also be advantageous for NRI investors.
Though returns can be good, mutual funds are risk prone. Mutual fund companies gather money from investors and invest in the share market. Capital gains and dividend income from these investments are taxed at the highest income tax rate; therefore, according to the experts, investing in MFs may not be a wise decision.
The stock market is another investment option where returns can be highly volatile, hence not recommended for the faint-hearted!
Many individuals dealing in the stock market are addicted to it and despite losing a great deal of money, still find solace in losing some more! However, Ravi Sinha, CEO of Track2Media Research, says: “NRI investment into stock market is [a] questionable proposition, especially at a time when instead of their money coming into the Indian market, they are themselves coming to India due to job losses!
“The Foreign Institutional Investors inflow vis-à-vis outflow in the stocks is a fair indicator of the trend. Returns on investments in stocks have been the least in the last three years for the investing community.
“Moreover, stocks are not the preferable investment instrument for NRIs at a time when several mid-cap and large-cap stocks have taken a severe beating. As a result, investment in mutual funds too has given less than expected returns.”
Experts list real estate as the most appealing sector for NRIs, with Bengaluru, Delhi and Mumbai the favourites. But Kumar adds a note of caution: “Residential real estate is definitely not the best route for short-term investors.
“One needs to stay invested for the mid- to long-term to garner the best returns. An investment horizon of three to five years is ideal.”
