Middle income NRIs are a clueless class as far as deciding where to invest their hard-earned money for decent returns and a peaceful retired life.
Financial freedom is something unknown to most of them and it is back to square one at the end of their expat life when they enter a retired life penniless plus chronic diseases and despair.
They always had in their mind the necessity for savings and investments with clear goals for securing a comfortable future, but very few acted accordingly.
Those who did, though prudently, realise in their twilight years that their investments have shrunken or vanished.
An analysis of their saving and investment habits by financial advisers typically shows that misplaced priorities and lack of knowledge are the reasons for such predicaments.
“An investor should be focused on his future life goals and financial responsibilities with proper mapping of his investment strategies. The investment options have to be finalised after taking into consideration the age, risk appetite and time horizon of the fulfilment of the objective,” said Jojo James, chief executive of Fosbury Wealth Managers and partner of Tamim Chartered Accountants Dubai.
That calls for a piece of advice on where to put their money. It may sound clichéd to say ‘don’t put all your eggs in one basket’. But as a theory of investing, diversification is essential and your money should earn for you.
An ideal basket should be a truly diversified investment portfolio that includes asset classes such as cash, safe deposits, stocks, debt, commodities and insurance.
Playing safe with savings account
A majority of the NRIs still park their money in savings accounts with nationalised banks – they don’t trust the well-run new generation banks – or fixed deposits in banks, for the only reason of capital guarantee and safety, though the returns are relatively low, and sometimes negative after adjusting inflation rate.
Average middle income NRIs are always risk averse to their investments and have greater preference for savings account with banks, fixed deposits, insurance and jewellery, said James.
NRIs prefer these products because of the notion that bank deposits in India are the safest and guaranteed option, and they consider insurance as investment following high sales pitch of agents.
Short term funds can be parked in savings account and the funds required for a period of one year to three years can be parked in fixed deposits.
Mutual funds are well regulated in India
The advantage of investing in mutual funds is include rupee cost averaging, risk diversification, and inflation-adjusted return. In India, mutual funds are well regulated and transparent and have high liquidity.
The investment options are flexible and can start an investment as low as INR1,000 ($14, £10.50) and have options to select equity funds, debt, gold funds, hybrid funds and multi-asset funds.
Systematic Investment Plans (Sips) are the most preferred investment tool that helps retail investors reduce the risk of timing the market and average costs over time, by buying more units when prices are low and fewer units when prices are high.
In the current scenario, SIP investors will accumulate units at lower prices, which will lower their average cost of purchase.
- Ramesh, chief executive of Veracity Consulting, UAE, said: “In SIPs, investors put a fixed amount in schemes every month or quarter. It’s like the recurring deposit of banks. When they began SIPs, the allocations are linked to various goals such as vacations and retirement.
“SIPs in equity mutual funds should be done with a time frame of minimum of five years, said R.Ramesh, chief executive of Veracity Consulting, UAE.
The 15x15x15 rule
An investment of INR15,000 per month for an investment horizon of 15 years with an annualised expected return of 15% per year would have generated INR10m. Even though the ‘15x15x15’ is an unwritten rule in mutual funds industry, many have exceeded this benefit. Among various rated equity funds, the average return over the past 15 year is 17%.
Gold as portfolio diversifier
Gold is one of the portfolio diversifiers because of its low to negative correlation with all other major asset classes. More than that, at the time of need, investments in gold can be liquidated faster than other physical assets. By habit, NRIs prefer to buy gold jewellery rather than gold bars, and not as investments.
For those who don’t want to take the risk of keeping physical gold for security reasons, gold certificates are the best option. You can deposit your gold with a designated bank for a specific period and you will receive a ‘Gold Certificate’ or passbook as proof of deposit. You also can earn interest on the deposit, depending on the duration.
Real estate
Investing in the property market has been a traditional and favourite means of investing for most NRIs as it is considered an attractive investment option. NRIs can buy both residential and commercial properties and there is no restriction on the number of properties owned.
However, selling of property comes with some restrictions by Fema (Foreign Exchange Management Act), especially in case of repatriation transactions.
