2 issues NRIs need to address on priority in their personal financial matters

2 issues NRIs need to address on priority in their personal financial matters

The numerous interactions that we have had with NRI customers over the last few years, has only reiterated to us that the challenges they face related to Financial Planning are, in many ways, unique. Dealing with two different currencies, two different set of tax rules, assets in two or more geographies with their own estate planning laws, restrictions on certain investments in India, opportunities to avail of special products, all this makes it clear that the challenges for NRIs are different and much more complex as compared to resident Indians. We have written earlier about these matters and you can find the article here.

In this article, let’s look at 2 specific issues a bit more in detail.

 

Affinity towards real estate and reluctance to sell

Most NRI customers we have engaged with have substantial assets in India and as is the case with most residents as well, their assets are invariably real estate heavy.  One house is a given, and many of them do have multiple houses.

So, why is this an issue? Most NRIs who avail of financial planning in India are clear that they will return here. However, rarely do any of them have clarity on when that might be, and it is usually “many years later”.

While the original reason for having acquired a house may have been appreciation or perception as a safe asset, their reasons to hold on to them, are however not the same. In many cases the plan is to settle in their own house once they return to India. For them, it is comforting to have a house in their “home country”, where there is no ambiguity in taxation or right to title etc. It is an emotional bond that they retain, almost like their ultimate safety net. But in such situations, rarely do things actually work out the way they have planned.

Most NRIs are used to much better lifestyles once they move out of India, since thanks to the surplus earnings available, their lifestyles get upped automatically. Having done this for years, how feasible is it for them to get back to a house purchased many many years back? Their preferences are likely to have changed, given their experiences outside the country. Is the size of the house going to be sufficient? what about the locality? Are there some amenities which have now become non-negotiable, but may not be available if one were to stay in the house currently purchased? These are some questions worth pondering over.

If the reasons for retaining the real estate is not to occupy it sometime in the future, one will have to periodically evaluate if real estate as an asset class is giving you the expected returns and is sufficiently liquid. With time, the value of the house as well as condition of the house/society/locality can erode considerably. For someone who is going to be away from the country for many years, it might also be unrealistic to be able keep track of these aspects, since valuations of real estate are also very subjective. In such situations, monetizing the current house and investing the money in assets which is best suited as per goals will allow one to accumulate a sizable corpus.  This will be available to invest in a house as per needs on return.

 

Lack of access to professional advice

This is true of a huge majority of NRIs we interact with. Their access to advice, especially on Indian investments, is limited to their bank RM, and maybe some insurance salespeople. As a result, their portfolios are filled with insurance policies and ULIPs which makes limited sense compared to their financial goals, considering that these products lock in money for long periods, give below par returns and play havoc on their cashflows, not allowing them to invest in more suitable and better performing products. To add to it, on every visit to India a new ULIP or endowment policy is sold to them with some very imaginative story.

Another reason why this happens is because the NRI customer is happy that the bank RM has “helped” them with their foreign currency requirements, and therefore feels obliged to purchase a policy which gets pitched to them as an after-thought. It is one of the oldest sales-tricks in the book  and is important for NRIs to not fall prey to it.

Good financial advice which takes your goals, your unique challenges as an NRI into account and incorporates various future scenarios, is available to you in India. There will be a fee attached to it but it will be worth it, since it will help you tie up your entire finances together.  Of course, one will require a planner and tax person in country of current residence too.

This will not only ensure that one has a plan which is totally customized to one’s situation, it will steer you clear of wrong choices currently being offered to you for wealth building. The peace of mind which you get, when somebody also ensures you action all the small and currently inconsequential but need-to-do list of financial items like estate planning, closure of resident accounts, health insurance, EPF transfer, timely filing of tax returns and refunds, etc., are added bonuses.

  

Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.

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For advice, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

 

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8 questions to ponder over if you are an NRI Investor

8 questions to ponder over if you are an NRI Investor

While the basic steps of financial planning are similar for most people there are certain situations which are exclusive to NRIs.  What I have seen from interactions with a few of them are as follows.

 

Are you sure about retiring in India?

While most NRIs are very clear that the children will be educated abroad and in all probability, will never return to India, they are unsure about their intentions of settling back in India post retirement. This can be challenging for retirement planning and deciding if it makes sense to hold on to real estate assets accumulated in India.

 

Have you insured your health adequately?

Most NRIs have huge global cover currently and hence are in a good position to take care of any medical emergencies should they arise. These are typically provided by the company and hence it can be a cause for worry. What would happen in case of a sudden loss of job? It would mean you dip into your savings for medical emergencies. 

In most cases, while people are aware of the need for a personal cover, they have put it off till they retire. Health insurance is available only to healthy people. It is possible that by the time you retire, there is some ailment which has crept up. This will make it difficult to get insured or at the least have undesirable exclusions in the policy.

 

Have you taken Critical Illness insurance?

Health insurance will cover your medical bills. What happens if you are unable to retain employment due to a critical illness?  While this is an important insurance for everyone, all the more so for NRIs, since losing income in an alien land can be even more traumatic. Also note that, while this is expensive in India, it may be affordable in other countries. Do check and ensure you take adequate CI cover. For more details on this subject, you can read an earlier blog of mine.

 

Have you done Estate Planning?

Again, this is true for most clients, since somehow coming to terms with the fact that death is inevitable is never easy. But in the case of NRIs, this is crucial, especially, when you have assets as well as dependents in multiple countries.  Do understand that assets in different countries are governed by different laws. Hence, make a will in India for your Indian assets.  Separately, consult with specific experts in countries where you have properties and other assets and plan for them as well.

 

Have you considered tax implications outside India while making Indian Investments?

As an NRI you may be paying tax on your global income.  What is tax free in India need not necessarily be tax free in the country where you reside. It is very important therefore to consult with both your Indian advisor and your advisor in the place of your residence. It is important to seek and heed to the advice of both professionals before you decide on a particular investment.

 

Do you believe investing in India can only be done in INR?

There are attractive options available in India to park currency of your choice. Check what these are and compare return and risk before you choose your instrument of choice.

 

Have you closed your EPF account on leaving your Indian employment?

Since it is etched into us that EPF investments give tax-free assured-returns, there is a lot of inertia in taking any action on this. In most cases its good and ensures a huge corpus gets accumulated for retirement.  But as per new rules, interest paid on EPF accounts once there is no fresh contributions is fully taxable.

 

Have you taken care of these minor but time-consuming changes?

If you have multiple bank accounts as a resident, you need to review and close them or convert them to NRO or NRE status.  Schemes like Sukanya Samruddhi which is available for residents is not for NRIs, hence you will have to look at closing such schemes.  It may be a good idea to have a check list of things to be done on your next visit to India and keep adding to it.

 

Managing all of this remotely on your own can be challenging if you are an NRI and having a trusted financial advisor who can advise you on these matters as well as execute, will help manage the situation.

 

Finwise is a personal finance solutions firm that helps both residents and NRIs plan for their financial goals, follow their passions and achieve financial independence. For consultations, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

 

Image credit: Emre Aliriz on Unsplash.com