The Ultimate Guide to Financial Planning for NRIs

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Being an NRI, are you confused about your long term financial plan for you and your family? Are Tax laws and investment procedures too overwhelming for you..?

Are you actually looking for a concrete step by step guide to effectively plan your finances in 2 different countries of residence..?

Are you skeptical about considering India as a better place to invest or not?

This post intended to answer all your challenges related to finances and potential investment opportunities, which will help you to achieve your ideal lifestyle goals!
Also, we will help you explore various options to invest in India along with the investment process from the scratch.

Table of Content

1. Why Financial Planning is required for NRIs
2. Demystifying the Financial Planning challenges for NRIs
• Taxation
• Protection of NRI Investors
• Categories of NRIs: Check your necessary steps

3. Why India is the best place to Invest for NRIs
4. Options for Investments in India
5. A step-by-step process for Investments for NRIs
6. Role of a Financial Planner
7. Final Words

Why Financial Planning is required for NRIs

Financial Planning is essential for everyone. And, it becomes even more critical for NRIs, as they operate in 2 different economies: India and the country of their residence. Financial Planning will be helpful for an NRI to:

i) Manage the Complex finances in Rupees and Dollar/other currency

After spending significant time in India, you and your family will surely have Indian bank accounts, FDs, PPF, investments, insurances, along with all your family property in India.

not worry about your future residential status, whether you want to stay abroad or in India!!

Being an NRI, it is essential for you to have a good understanding of Financial Planning which is compatible with India and your country of residence.

ii) Pressed for time

NRIs like you plan a visit to India for a very short time. You do not have an indefinite time to plan for all the finances and investments. Also, there are special rules and regulations specifically made for NRIs that might be confusing for you.

Even if you understand these rules and try to create your financial plan by yourself, the problem is that these rules get updated periodically. And, it becomes very hectic and unpractical to keep track of all the planning related to finances.

Therefore it is better to have the Financial Planning done by the certified experts who are always well-informed with all recent updates applied to the financial world.

In the subsequent section in this article, we have covered a wider perspective of Financial Planning and Investments, it will help you to reduce a significant amount of time researching everything by yourself.

iii) Lack of Clarity in Goal Setting

Once the Indian residents get to leave India and reach abroad, there are certain tough decisions need to be made, such as returning back to India after a short time during the job or after retirement!

And, you might have experienced that more often decision changes over a period of time, due to various work or family situations.

So, it becomes very hard to make a firm goal. And, firm goals are absolutely important for a good financial life.

Poor goal settings for an NRI are disastrous for their financial future.

Therefore no matter in which stage of clarity are you in, we have a Financial Plan for you to take an informed decision in making your firm financial goals work for you and your family.

iv) Erroneous Investment decisions made due to Social Influence

It is the nature of human being that they operate on pre-programmed thoughts, which they might have heard from other people.

For example, if you have heard from your other friends or family members regarding the great review of investments made in Gold or Real Estate, you subconsciously want to invest in exactly the same investment vehicles, assuming that you already have sufficient information about them!

Some investment vehicles have good reputation and scope in other countries but they may or may not work well in India.

Therefore, without proper knowledge regarding investments and Financial Plans, your investments may result in the huge risk of losing money.

On top of that, there are various taxation laws applicable to NRIs. We will cover these details in subsequent section in this article that will help you to cut your extra un-informed expenses.

v) Reduce significant stress

Being an NRI, once you have your Financial Plan in control, it means, you have your life in control.

If you have your firm financial plan, you need not be confused always. You need not research for all kind of information, all the time.

Therefore, after learning the essential pointers presented in this article and implementing them as suggested, you can significantly reduce your major stress and spend your time joyfully in the country of your choice.

How cool is that..?

Based on our long experience of dealing with NRIs, we have figured out that, due to lack of information related to financial planning, most of the NRIs ended up making the following common mistakes:

a) Lack of Clarity of their priorities in life and their desired lifestyle.
b) Ending up investing in a basic saving account or FDs. Which leads to poor wealth creation and they are also Tax and Inflation Inefficient investments.
c) Excessive liking of Real Estate Investments. Truth is, there are better investment options available.
d) Lack of Knowledge about Tax Laws. No idea on penalties, hassles and Tax Regulations.
e) Many of them have issues on the protection of their investments.

Therefore, we have created this comprehensive article to address the common mistakes and challenges and our intention is to motivate NRIs like you to make use of great financial opportunities available for them.

Also, our objective is to create a dedicated financial plan for you, no matter in which situation or dilemma you are in.!

Let’s explore deeper into demystifying these challenges.

Demystifying the Financial Planning Challenges for NRIs

NRIs often worry about Taxations Laws and the protection for their investments. We will discuss the Taxation Law and the Protection Laws in detail.

Taxation

Indian Taxation law for NRIs is simple and easy to understand. Let’s discuss Taxes in 4 broad categories:

1. Income exempt in India:
• Interest on NRE Account deposits
• Income earned abroad
• Foreign currency investments are taxed at much concessional rates.
• Assets properties received in India in the form of a gift, or inheritance.

2. Income taxed in India:

• All long term and short term gain from various investments in India
• Recurring gains on the inherited property in India will be taxed.

3. When NRI should file ITR in India:

• Want to claim a refund.
• Facing a loss of transaction in any asset or investment that you want to carry forward.
• If taxable income in India exceeds Rs. 2.5 Lacs.
• If you have long or short-term capital gains on the sale of an investment or asset.
• But, if you only have financial investment income and TDS has been deducted then it is not required to file your return. There are a couple of things you need to pay attention to when filing your IT returns.

4. How taxes can be saved for an NRI:

• There are benefits under home loan, equity-linked schemes, life insurance, or pension plan.
• Deductions for insurance policies of parents and dependents.
• Claiming a lower tax rate by investing in bonds under capital gains.

Protection of NRI Investors

Most of the people have a negative perception about India. It may be due to the news of various scams and fraudulent schemes, they might have heard of, in television or press media.

But we have strong regulations for the safety of all NRI investments. Indian regulators – RBI and SEBI- are really stronger compared to other regulators in developed countries. We have below guidelines for NRI investors:

• Investors are protected through rules and regulations of SEBI.
• SEBI ensures full transparency of dealings.
• Streamlined structure to resolve complaints
• Stringent norm to be followed by registered intermediaries.
• Stock exchanges have Trade Payment Guarantee Fund in case the member fails to honour.
• Most of the process is online, which can be tracked by an investor at all time.

Categories of NRIs: Check your necessary steps

Now, there are various categories of NRIs having different goals and plans. Each one should take some necessary steps based on their status. They are widely categorized below:

1. Residents becoming NRIs.

Before you leave India, take care of the essential steps given below:

• Open an NRO account or convert your existing bank account to NRO accounts by submitting an application to your bank.
• Open NRE and FCNR account to invest your foreign earning in India
• Update your KYC at Mutual Funds and Insurance Policies.

Having a detailed checklist, when you become an NRI from a resident, will help you have a better financial journey.

2. NRIs returning to India and becoming Indian residents

Once you arrive in India and move out of your RNOR status to become a resident, the below steps are need to be taken care of:

• You can transfer the balance in your NRE/FCNR account to Resident Foreign Currency (RFC) Account. Or,
• You can re-designate your accounts in your banks as Domestic Resident Account.
• FCNR accounts can be converted to RFC Account upon maturity. Till maturity FCNR accounts may be continued.
• You need to convert your NRE account to resident account immediately upon returning to India.
  For greater details and the insights on returning NRIS, visit this post.

3. Senior NRIs, in the constant dilemma of returning back to India or not!

There are many valid reasons why the majority of the senior NRIs are always unsure about returning back to India.

You want your children to stay connected with the cultural roots of India, know the Indian language and getting them married to an Indian partner. So you plan to visit India every 2-3 years!

Other reasons are your parents, who don’t want to emigrate abroad permanently and your children have almost no desire to come back to India.

So, there is a constant dilemma due to the equivalent amount of Yes and No, on returning back to India.

But it must not hold you back in having your Financial Plan to be rigid, no matter where your family may finally decide to live.

Below are few pointers for financial planning in such case:

• Consider hiring a financial planner in your country of residence and in India.
  Discuss with them your firm goals as well as tentative goals by making sure that both of your advisors are in better sync with your overall plan.
• Consider investing in a longer-term customized retirement plan, which can be transferred to Indian account, if you later decide to return back to India. You can read this article for greater details on the retirement plan for NRIs.

For more concrete advice specific to your country of residence, contact a good Financial Planner. In India, you can contact us by booking your consultation call with us. We would be glad to assist you with all your queries.

4. NRI Retirees

NRIs can achieve their retirement goals in the major steps given below:

• Estimate your retirement budget as accurately as possible. You might have your future goals for your children’s higher education, marriage, your post-retirement lifestyle and so on.
  To understand your retirement plan in a better way, read this post on NRI retirement plan.
• Keep all your required documents such as KYC, Portfolio Investment Scheme (PIS), Bank accounts, Demat account and other trading accounts to be updated for hassle-free investing.
• Take advice with Financial Planner regarding overall financial and investment planning for an unbiased view, don’t rely on your bank for much information.

Why India is the best place to invest for NRIs?

NRIs like you tend to visit India more often due to their friends and family residing in India. They come down to India every quarterly, half-yearly or annually.

It is a great idea for you to make use of Investment opportunities in India. If the Indian government has treated Indians and NRI investors on the same boat, there is absolutely no reason for you to not invest in India.
Let’s have a closer look at a couple of advantages of Investing in India:

• Indian Capital Market is very well regulated and well structured.
• It provides good returns in investment
• Low taxes
• Excellent prospects
• Emerging Economy, soon to be No. 3rd in the world after the US and China.
• GDP Growth rate is soaring above 8.
• Strong Demographics
• Highest Forex Reserve
• Falling Crude rates

And, the list goes on and on. No financial advisor would ask you to NOT invest in India! In fact, India is the best place to invest for Indians and NRIs alike.

Read on to know more about NRI investment options and let’s make an informed decision to invest in India being an NRI.

Options for investments in India

Investment can be successfully made in 2 wide categories:

1. Financial Markets, such as Equity Funds, Debt Funds, AIF and Mutual Funds.
2. Non-Financial Markets, such as Real Estate, Precious Metals, Art etc.

Now, let’s discuss the essential aspects of these 2 markets for you to provide a better insight about them.
Among all Financial Markets, our recommendation is Mutual Funds as they have lower risk and high returns. You can invest in Equity, Debt and Hybrid Mutual Funds based on the duration of your goal.

• If you plan to invest for 5 years or more, choose Equity Fund.
• If you plan to invest for short term, that is, within 1-3 year, then choose Debt Fund. And,
• If you plan to invest for 3-5 years, then it is better to choose the Hybrid Fund.

You need to understand in detail about Mutual Fund Investments for NRIs.

In Non-Financial Market, you can invest in Real Estate, where you can opt for Commercial and Residential Properties. Only the Agricultural lands are not an option for NRIs.

Step-by-Step Process of Investment for NRIs

NRI Investment process can be better understood in 3 phases. Let’s say if you want to invest in stocks, this is how your investment process follows:

1. Pre-Investment Process:

You have to follow below steps regarding your essential documentation and bank accounts:

• Obtain a PAN Card from Income Tax Department.
• Open Bank accounts, NRE and NRE-PIS with the designated bank.
• Open a Demat Account with Designated Depository Participant.
• Register with member broker of Stock Exchange (BSE/NSE)

2. Investment Process:

During the investment your focus should be on:

Based on your financial goal, whether it is long term or short term, you should develop various investment alternatives wherever you invest, whether it is Mutual Funds or Stocks..!

There are millions of investment alternatives available and you have to decide on what sort of investment alternatives suits the best for your needs!

Evaluating the past performance of each of your investment alternative will allow you to make an educated choice on making your investments.

In some cases, it would be hard for you to predict the future performances of the investments; those are new and working well so far.

In such cases, a piece of expert advice from a certified financial planner would work as a blessing for you.

Based on your evaluation of various investment alternatives, now it’s time to select a RIGHT investment alternative for you.

You have to decide on how many investment schemes do you need by linking each of them by your big or small financial goal.

After creating the list of your choicest investment alternatives, now it’s the time to start investing.

You can do it online from anywhere. Tracking and monitoring of your investments are also possible through online mode.

But, you being an NRI it is always better to take this step under the supervision of a certified financial planner.

He will guide you on how much money you should invest in each investment alternative to reach your financial goals for you and for your family.

3. Post Investment Process:

In this phase you have to monitor your investments in below simple steps:

After initiating the investment process, it is very important to review or restructure the investments.

Reviewing your investment portfolio helps you identify non-performing investments from your portfolio.

Also, regular reviewing may help you identifying the investments that you might have missed to disclose in your annual ITR. Your investment portfolio will remain updated and will always reap good returns.

Keeping a separate record of all your monthly payments towards your investments and their returns is beneficial and makes the investment process very systematic and streamlined.
This process will help you to monitor and track your investments from time to time.

You have to file your tax returns time-to-time. It is compulsory in any investments.

If your taxable income in India exceeds Rs. 2.5 Lacs, or if you have long or short-term capital gains on the sale of an investment or asset, then you have to file a tax return.

A good financial planner will sort out all your post-investment process for you and would allow you to live life without hassles or stress.

Role of a Certified Financial Advisor for NRIs

All the complex financial processes can be highly simplified by hiring a professional Financial Advisor. A Financial planner for NRI will be additionally responsible for a few things. Please check if he is in a position to provide the below:

• Providing professional advice on potential investments from time to time. Also, a financial planner will be helpful in systemizing all your investment processes based on your residential requirement in any country of your choice.
• Make sure to hire a financial planner who is accessible in your time on the internet, so that you can be connected with him through online mode whenever you need.
• Tracking and monitoring the investment progress and being in connection with you time to time, sharing all the necessary information and updates online.
• Removing the complication for taxes in India. You never have to worry about taxes, if you have a good financial advisor working for you. He will systemize your entire taxation plan.

For example, you have to pay taxes on all recurring gains on the inherited property in India.
Also, there are various tax exempts for NRIs.

Your financial planner will take care of all the tax-related issues.

• A good financial planner will always provide you with updated information on new investment opportunities, those are trending in India. Since India is a developing country, therefore there are a lot of new and high-value opportunities all the time.

And, so much more. For more details of selecting the right Financial Advisor for NRIs like you, read this post.

Final Words

We hope that this post has given you a wide overview of various aspects of Financial Planning. The most common challenges of NRIs are addressed and have given you greater insights into the investment process in India.

It is great to educate yourselves about these financial planning aspects, but it is always better to invest in a Certified Financial Planner for personalized support.

All the rules and regulations mentioned above are applicable today but there are high chances for these rules and policies to get modified or updated over a period of time. A good Financial Planner will always keep you safe from all kinds of turbulence in the Financial World.

We at “Holistic Investment” are dedicated to assisting you in creating your holistic Financial Plan. To know more about our award-winning services, click the link below to book your Consultation Call with us.