Financial Planning applies to every individual, including Non-Resident Indians (NRIs) who can benefit from a structured Financial Plan for all the life goals. A financial planner will be able to create a professional and defined financial plan which will integrate all life goals and also align the current finances of an individual to the life goals. For an NRI, having a professional financial plan in place is crucial, as it might involve planning for life goals transcending borders, with a possibility of assets spread across two countries and addressing additional risks such as currency exchange risk and political risk.
A well-defined and structured financial plan will not only help you to streamline the life goals to finances, it also sets a path to follow to achieve the defined goals. Some of the steps you, as an NRI can undertake to achieve the financial goals are:
How to choose a Planner?
It could be a formidable experience for you as an NRI to choose a financial planner who is well aware of the tax laws and investment options in India as well as in your country of residence. It would be best suited if you engage professional financial planners in both the countries if you plan to invest in both and liaise between them.
A planner in India should be well aware of the Foreign Exchange Management Act (FEMA) regulations applicable for NRI investments, be aware of the taxability of investments for NRIs and also about repatriation rules applicable for various investments, and draft an investment plan accordingly. The usually preferred investment channel for NRIs is the banker, which may result in buying products associated with that bank rather than investing in the well-performing assets.
Identify your life goals in India and overseas
Listing down your life goals with an approximate cost of the goal, the duration of the goal and the remaining years to the goal, helps in estimating the achievability of your goals. As an NRI, the priority should be deciding on the retirement – whether you would return to India on retirement or would you retire in the country of residence? If your children may be inclined to study in your country of residence, you might have to make a higher contribution to the Children’s education goal’s kitty. Essentially, an NRI has to take crucial decisions early in life and segregate goals in India and goals in the country of residence.
A finance planner can help you in listing down your goals and categorizing into essential and optional goals.
Know what you own. Know where to invest – in India or in the country of residence
It is important for you as an NRI, to know the assets you own in your country of residence and in India and also their combined worth. A professional finance planner will help you to analyze and allocate your existing assets to goals in India and goals in the country of your residence.
India’s emerging market makes it lucrative for NRIs to invest and make better returns on their investments. As an NRI, your investments should be based on your risk profile and your goals, and should not be an emotional decision to invest in your home country. Depending on whether the goal for which you are investing is to be achieved in India or in your resident country, investments can be made either in India or in the country of residence or in any global investments.
Typically, a finance planner would recommend holding your Indian assets for goals based out of India such as retirement, health care post-retirement, post-retirement vacations etc. If you don’t plan to return to India and have no India-specific goals, it doesn’t matter if you invest in India for better returns or elsewhere in the world. Investments for goals like children’s higher education abroad, it is advisable to invest in the country of residence, so as to avoid currency fluctuation and exchange risk.
Do you want repatriable investments?
For NRIs who prefer to invest in India, the returns are higher in both equity segment, and debt segment like FDs. Also, the government of India doles out tax breaks regularly to make India attractive for NRI investments. However, there are strict rules and regulations set for repatriation of the same. Before investing in India, as an NRI you should have clear cut life goals, whether you are investing only for better returns or for settling down in India someday.
Taxability of your investments in India and at home country.
Taxation on your investments and gains made from it is a matter of great concern when planning your investments. As an NRI, you might be inclined to make better returns and take advantage of tax sops in India. However, the tax-free income for NRIs in India might be taxed in the country of your residence. Many developed countries like US and Canada, minutely track the assets of their citizens in other countries so as to ensure tax compliance.
Your finance planner should be well aware of the tax consequences of investing in the country of residence and in the home country. Each goal should be planned to take into account, the approximate post-tax returns of an asset. Though assets which are inherited are tax-free in India, they might be taxable in the country of residence.
Do you need life insurance in India?
For NRIs permanently settled abroad, getting their life insured in India may not seem essential. However, if you have India specific goals like elderly care for parents, it is advisable to take an insurance cover in India. The Indian insurance market is dominated by plans like endowment and market-linked policies, which are not suitable investments for NRIs as they carry high fund management charges.
A financial planner should carry out an insurance analysis on the Indian goals and recommend suitable risk cover. In India, pure risk cover is available as Term Cover for a fixed number of years.
To summarize, financial planning is very much essential for NRIs irrespective of whether they intend to return or not. The investments should be made based on the goals rather than investing on own emotions, with the help of a professional finance planner rather than through banking channels.