Lessons for NRI investors

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Although it feels like we just started this module, we’re already on to the third chapter. Over the past two chapters, we’ve seen both NRI friendly policies that India has put in place and the various tax laws that NRI investors need to keep in mind. In this one, however, we’re going to look at a few key lessons that NRIs such as yourselves need to follow. Let’s just jump right into the topic.

1. Ensure that you account for the change in residential status

This is one of the most important lessons that NRI investors should ensure that they keep in mind. A change in the residential status from Resident Indian to Non-Resident Indian brings several changes along with it. And so, being aware of these changes and adequately accounting for them is crucial.

For instance, one of the major changes that NRI investors are likely to face is with the bank accounts. When your residential status switches from resident to non-resident, you’re required to convert all of your existing bank accounts to either NRE (Non-Resident External), NRO (Non-Resident Ordinary), or FCNR (Foriegn Currency Non-Resident) accounts. Failing to convert your bank accounts can not only prevent you from investing in any NRI investment options, but can also get you into trouble with the authorities.

Also, ensure that you convert your existing demat account to an NRI demat account. This will allow you to invest in investment options for NRI in India without any hitches whatsoever. As with the bank accounts, any delay or failure to do this will prevent you from investing in some of the best investment options for NRIs.

2. Be mindful of where you invest

This is one of the best NRI investment tips that you can ever receive. Since NRI investors tend to earn in foreign currencies, many of them tend to take advantage of the difference in foreign exchange rates by investing in investment options for NRI in India. While this is an extremely good idea, you should also tread carefully, especially if you’re intending to invest in mutual funds.

If you’re an NRI who is currently residing in the U.S.A or Canada, you would have to comply with the stringent regulatory and compliance requirements of FATCA, which is a regulatory body. The FATCA imposes restrictions on certain mutual fund houses. And since non compliance of FATCA provisions carry hefty fines and penalties, you should always be mindful of the NRI investment options that you choose to go with. Before you make any investment, always ensure that it complies with the requirements of FATCA.

3. Diversify your investments

Although this lesson is not exclusive for NRI investors, it deserves a special mention here. Many Non-Resident Indians tend to just stick to one or two investment options for NRI in India. One of the primary reasons for this behaviour can be attributed to the unawareness of regulations and taxation laws.

Therefore, in a bid to avoid complications, these investors tend to invest in only a select few NRI investment options. However, if we’ve learnt anything from all of the previous modules and chapters of Smart Money, it is that diversification works and is extremely important.

And so, the next time you wish to invest in the best investment options for NRI, try to diversify your investments a little instead of just sticking to the tried and tested options like FDs, gold, and real estate. This way you can ensure that you’re adequately protected from investment risk, and increase your chances at wealth creation.

4. Focus on clearing off debts

Though this may not be one of the NRI investment tips that you’re looking for, it is valuable nonetheless. If you’ve migrated to another country, either permanently or temporarily, chances are that you have left behind certain debts or loans. Now, although you might be tempted to use your foreign currency earnings for lifestyle expenses or on NRI investment options, the key thing that you need to always keep in mind is to clear off existing debts.

With existing loans and debt obligations hanging over your head, you may not be able to invest as efficiently as you would like. And so, focus on getting rid of them first before you form an investment plan. This will ensure that you keep your expenses controlled and will also free up a lot of your capital, which you can then use towards investment options for NRI in India.

Wrapping up

And there you have it. 5 very important lessons that NRI investors such as yourselves need to always keep in mind. With this, we’re done with yet another chapter of this module. In the next one, we’re going to be looking at some things that NRI investors planning their return to India should account for.

A quick recap

  • A change in the residential status from Resident Indian to Non-Resident Indian brings several changes along with it. Being aware of these changes and adequately accounting for them is crucial. 
  • If you’re an NRI who is currently residing in the U.S.A or Canada, you would have to comply with the stringent regulatory and compliance requirements of FATCA, which is a regulatory body. 
  • NRI investors should also remember to diversify their portfolio and focus on clearing off their debts.

FAQs

1. What kinds of bank accounts can NRIs hold?

When your residential status switches from resident to non-resident, you’re required to convert all of your existing bank accounts to either NRE (Non-Resident External), NRO (Non-Resident Ordinary), or FCNR (Foriegn Currency Non-Resident) accounts.

2. Who needs to comply with FATCA?

FATCA is applicable to NRIs in the USA. As per these rules, U.S. taxpayers who hold foreign assets with an aggregate value of more than the specified threshold of at least $50,000 need to submit the relevant reports to the government.

3. Do NRIs need demat accounts to invest in Indian securities?

Yes, NRIs require special NRI demat accounts to invest in the Indian securities market. If you are an NRI, you can easily open an NRI demat account with any one of the many stock brokers who offer this service.

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