Living abroad as a Non-Resident Indian (NRI) is an exhilarating experience, but as an NRI, you always yearn to return to the motherland. Planning a sound financial program in your own country is a concern for every NRI. May it be to purchase your dream house, fund your children’s higher education, meet the financial needs of your ageing parents, or simply to lead a comfortable, financially independent retirement later in life.
Managing your finances is a complex process that requires a sound balance between earning capacity and tax liabilities. NRIs who live and work abroad but wish to save and invest in India today enjoy the benefits of a deep and varied financial market that is growing exponentially each year.
Strategically choosing the right kind of long term investment plan enables one to make the most of one’s hard-earned money and protect one’s family from financial hardship.
Why NRIs Should Consider Investing in the Indian Economy
India is one of the fastest-growing economies in the world, and it is an attractive destination for any foreign investor.
With robust government agencies like the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority of India (IRDAI), strong banking systems, high-yield stock markets, and favorable currency fluctuations, there are plenty of reasons why an NRI should think about investing in India.
Earnings in hard currency such as USD, AED, GBP, or EUR provide higher returns when exchanged for Indian rupees. Investing in financial instruments denominated in Indian rupees helps the NRI to hedge against fluctuations in the value of the foreign currency with respect to the Indian rupee.
The Financial Objectives of Every NRI Investor
It is important to classify one’s financial objectives into broad categories before selecting the financial instruments that one wishes to invest in.
Most NRIs tend to have overlapping financial goals, which may be classified under the following headings:
- Family Protection and Risk Management: Providing financial security to one’s family in case of any mishap that may befall the NRI.
- Wealth Creation: Accumulate substantial savings and grow the corpus at a rate faster than inflation to enable one to meet any long-dated financial needs.
- Retirement Planning: To create a perpetual stream of income for a hassle-free retirement back in India.
These financial objectives will enable the NRI to decide the combination of traditional and market-based instruments and life insurance plans that will help one to reach one’s financial goals.
Overview of the Long-Term Investment Options Open to NRIs
Every NRI investor has a variety of financial instruments at his disposal to grow his savings. Based on one’s risk appetites and time-value preferences, one may choose to construct a portfolio comprising some or all of the following financial instruments:
- Indian Equity and Mutual Funds: For someone who wishes to grow his savings over a medium-to-long term (5 to 10 years or more), equity shares and mutual funds offer a good combination. An NRI may choose to fund these through his Non-Resident External (NRE) or Non-Resident Ordinary (NRO) accounts. While one may directly invest in shares listed on the Indian stock exchanges, mutual funds offer the benefit of choosing from diversified large-cap, mid-cap, and multi-cap funds based on one’s risk tolerance levels.
- Non-Resident Fixed Deposits: The tried-and-tested method of earning guaranteed returns on savings is through fixed deposits with the banks. An NRI may choose to open Non-Resident External (NRE) deposits to deposit his foreign earnings in his NRE accounts in rupees. The interest accrued on NRE deposits is tax-free in India. Non-Resident Ordinary (NRO) fixed deposits, on the other hand, are ideal for parking income earned in India (rental income, for example), and while the interest earned is taxable, it is eligible for repatriation.
- National Pension Scheme (NPS): This pension savings scheme managed by the Pension Fund Regulatory and Development Authority (PFRDA) offers a systematic combination of market-based and government-backed instruments to help the NRI create a retirement corpus that may be withdrawn as a lump sum or as an annuity upon attainment of the age of 60 years. This scheme is ideal for those who wish to make structured contributions towards their retirement savings. NRIs who are residents of India and between the ages of 18 and 70 years are eligible to join the scheme.
The Role of Life Insurance in an NRI’s Financial Portfolio
Buying a suitable life insurance cover for oneself is a fundamental pillar of financial planning for any NRI. A life insurance policy is not only a financial safeguard against the risk of death but is also a tool for disciplined, systematic wealth creation.
Overview of the Various Life Insurance Plans for NRI
- Term Insurance: Pure risk-protection plans, term insurance offers one of the highest sum assured for the lowest possible premium. In the event of the death of the life insured during the policy term, the nominee receives the sum assured. This helps cover one’s financial obligations to one’s dependents in India.
- Unit Linked Insurance Plans (ULIPs): ULIPs offer a combination of life cover and wealth creation. A certain percentage of one’s premium is used to provide life cover, and the balance is invested in market instruments such as equity and debt based on one’s risk profiling at the time of purchase. ULIPs also offer a disciplined approach to wealth creation and have a mandatory 5-year lock-in period.
- Endowment and Guaranteed Return Plans: Endowment plans provide an option to the NRI to receive a regular income stream or a lump sum amount at the end of the policy term in addition to the life cover. Similar guaranteed return plans also promise to pay out a maturity benefit at the end of the policy term.
Benefits of Buying a Life Insurance Policy in India
Buying a life insurance policy in India offers distinct advantages to the NRI:
- Lower premiums: Premiums for a similar sum assured are generally lower in India as compared to many Western countries.
- Easy online application and global coverage: With the advent of digital technologies, most private life insurance companies now offer online application forms, document submission, and even online health check-ups. The life cover applies globally, providing coverage irrespective of one’s residence.
- Easy repatriation: Claim proceeds and maturity proceeds received from NRE accounts may generally be repatriated back to one’s foreign bank account.
Precautions before Finalizing a Particular Investment Plan
Before investing in any particular financial instrument or life insurance for NRIs, an NRI should consider the following issues:
Verify whether the plan requires funds to be transferred from one’s NRE or NRO account. Investing via an NRE account will make it easier to repatriate funds when necessary.
Insurance companies conduct underwriting based on one’s age, occupation, health, and country of residence. NRIs from certain high-risk countries may be required to submit additional documents or even to undergo a personal health examination.
Carefully go through the terms and conditions of the policy, especially the lock-in period, mode of premium payment, surrender value, terms and conditions related to any riders attached, and the schedule of payouts.
Constructing a Long-Term Investment Plan
An NRI does not need to get overwhelmed at the prospect of having to create a long-term investment plan for securing one’s financial future in India. With a combination of market instruments such as mutual funds, fixed deposits, and life insurance, one may build a financial corpus that will provide both financial security and wealth creation for the long term.
