PARK Financial Advisors

The process of investment into India has progressively been made simpler and in many cases, no permission from the RBI before investing in India. We look at some of the issues which NRIs face in investing in the country and the process of investing in the country.

When India looks for investments in various sectors, among others, it turns to the NRIs, the case in point being Resurgent India Bonds. The process of investment into India has progressively been made simpler and in many cases, no permission from the RBI before investing in India. However, before we discuss the actual process of investment for the NRIs, let us look at some of the issues faced by the NRIs when they invest in India currently.

Investing in India is typically a one time event every year - when they come to India. Massive mis-selling occurs due to time pressure and the need to close a deal. Since the time is short and the occasion is one of vacation, decisions get taken hastily. This causes pain later. However, over the last two-three years, every investment has yielded good returns so inefficiencies do not show up. For example, many NRIs have been stuck with no-start projects with large notional gains in their real estate transactions.

The other issue that NRIs face is the cost of transfer of money to India. While there are various ways of sending money (like cheques, wire transfer, online remittances, etc), the transaction cost of investing regularly can be high. In many cases, the cost is hidden as most of the gains by the intermediaries are made in the exchange rate transactions. Converting money in bulk - at the end of the year, for example, means a better spread than doing it in 6 or 12 pieces during the year. However, this also means that the risk of currency movement is held through out the year!

Process of investing in India

Get a PAN: The most important document or registration required by NRIs is the Permanent Account Number (PAN). This is available to many first generation NRIs as a legacy of their stay and working in India. Getting a PAN is easy with the private PAN facilitation centres, which issue PAN within a few days.

Opening a banking relationship: Since all the investing transaction require a banking channel (buying and selling, parking funds, etc), opening a bank account is the next steps. Banks are more than eager for NRI accounts since they tend to maintain higher balances and offer great opportunities for cross selling. Open an NRE account to maintain repatriability of the funds invested in India. Banks allow NRIs to nominate a local representative who has the "mandate" to operate the banking account on their behalf.

Appoint a local representative: Investing in illiquid assets like real estate might require the NRI to appoint someone in India as his local representative. The NRI needs to give a "power of attorney" to the local representative detailing the powers that the representative can exercise on behalf of the NRI. If the NRI does not want the hassle of writing cheques to his insurance company or to his mutual fund company, he can give his local representative the right to sign, invest and redeem on his behalf.

Identifying a financial advisor: Similar tests apply for the NRI when it comes to choosing a financial advisor. He needs to find someone who can win his trust. He needs to look at the ability of the advisor to service him: the client should not be too large or too small for the advisor. Look at the ability of the financial advisor to provide legal and international tax advice: this can be important especially since the NRI might do many transactions "sight-unseen" and across tax-geographies. In case of professionals, if the company has accredited financial advisors, then the professional knows where to go.

Deciding on asset allocation and insurance needs: The financial planner should help the NRI develop a long range financial plan for the investment of his assets as also for the insurance needs of the client. While it may not always feasible for the advisor in India to research the market dynamics across the portfolio of his client, he should have a basic understanding of the risks on his client’s portfolio. Depending on the long term needs of the client, the advisor needs to decide his India and Indian rupee allocation.

Understanding of the local laws (including taxes) and customs: There can be man quirks in the local law that the NRI should know of. For example, while repatriation of sale proceeds of house property is allowed, it is limited to two such repatriations per individual. Similarly, capital gains bonds are available only up to Rs. 50 lakhs per person per year: in case the NRI has made larger capital gains, he will need to pay the tax on that or reinvest in another property. Similarly, an understanding of the local customs can go a long way in helping the NRI set expectations correctly. While there is increasing professionalization on the real estate development, there are many cases when the projects take much longer to complete.

For the NRI who wants peace of mind, he needs to partner with a financial advisor who can navigate him through the various potholes in investment in India.

Akhilesh Tilotia
tilotia.akhilesh@parkfa.com

The author is Director, PARK Financial Advisors Pvt. Ltd., Mumbai. He is an MBA, IIM, Ahmedabad.