Six NRI Investment Mistakes to Avoid

Six NRI Investment Mistakes to Avoid

Investment is an art that you can master with patience and practice. When starting out, many NRIs often lack these—and, thus, miss out on potential opportunities.

Whether you have been investing as an NRI for a long time or are just beginning your investment endeavors, there are some common mistakes that you are likely to make.

Here are the six NRI investment mistakes that you should avoid:

  1. Investing in Real Estate Without Research

  2. If you invest in real estate in India for the purpose of staying there when you return, don’t let emotions rule.

    Consider the following factors, as well.

    When will you return to India?

    If you see that happening 10 or more years down the line, start saving now, but don’t invest in real estate right away. The markets and your personal finances could change.

    The rental income on properties given on rent isn’t very high. And the maintenance costs pile up fast. Thus, timing your investment—especially in real estate—is important.

    A hasty investment today might become a burden later.

    Location of the residential property
    When deciding on a location for your retirement residential property, you should consider factors such as:
    • Safety quotient of the location
    • Proximity to basic amenities like hospitals, marketplaces, etc.
    • Transportation connectivity
    • The neighborhood
  1. Continuing to Use Residential Accounts for Investments

  2. NRIs often ignore the need to switch to proper accounts for investments.

    When you are an NRI, you cannot operate through your regular savings account in India. You need an NRO account.

    Similarly, the accounts you use for stock trading also need to change.

    Your DEMAT account needs to be converted to an NRO DEMAT account. Instead of using your trading account for dealing in shares and debentures of Indian companies on the Indian Stock Exchange, you need to route those investments through a Portfolio Investment Scheme (PIS) account.

    If you had investments in mutual funds before gaining NRI status, you should inform the registrar and update documents like your PAN and KYC.

  1. Not having a balanced portfolio

  2. NRIs often have highly skewed investment portfolios. Most NRIs rely on well-meaning relatives, friends, bankers, and advisors for investment-related groundwork.

    You should make sure that your portfolio is in line with your long-term financial goals, risk tolerance, and current financial situation.

    Overemphasis on fixed income instruments (debt instruments) is also a mistake that should be avoided.

    Fixed income instruments are less volatile, for sure. But they are not without their inherent risks.

    Non-payment of interest, and even capital on such investments, can be a concern for NRIs. Inflation and rupee depreciation are also points of concern for fixed income instruments.

    Thus, stay updated with the latest market happenings, and keep your NRI investment portfolio sufficiently spread out and balanced.
  1. Ignoring Foreign Tax Implications

  2. A 401(k) retirement plan is a popular investment option for NRIs in the U.S. And while there is no denying the benefits of the plan, some aspects need to be considered.

    Withdrawal from the policy before reaching the age of 59.5 years invites a 10% penalty, as well as income tax on the distribution of the amount.

    Similarly, every other investment policy has certain tax-related terms and conditions that need to be considered.

    If your sources of income aren’t fixed, and you are unsure about your financial needs, investing in long-term plans is not the wisest option.
  1. Ignoring TDS and its Implications

  2. NRIs have to pay Tax Deducted at Source (TDS) on every investment option.

    A 15% TDS is levied on short-term capital gains from stocks.

    Short-term gains from debentures, gold, debt funds, and property invite a 30% TDS.

    Talking about the long-term gains, the rate is 20% for property and gold.

    Other than these, TDS is charged at 30% on bank deposit interest.

    You should make proper provisions for NRI TDS deductions before investing.
  1. No Estate Planning

  2. NRIs often have investments in multiple countries. And all of these investments might not be known to any one person, even the legal heir.

    While estate planning is never high on an NRI’s investment planning priority list, it is important. And making the grave mistake of not planning your estate should be avoided at all costs.

    Life is uncertain. It is important to make sure that in the event of ill health, incapacitation, or death, the totality of your investments is safely and smoothly transferred to your legal heirs.

NRIs need to be extra prudent about their investments. Avoiding the mistakes mentioned above can take you one step closer to making rewarding investments in the right way.

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