NRIs should not let delayed investments cost them dearly through inflation
Inflationary costs have a way of punishing investors when delays multiply
Investors often expect two favourable outcomes from their investments - securing their initial investment and growing their wealth over time.
This is especially true for NRIs who move away and start afresh to seek higher financial security and better avenues for wealth creation. But it’s hardly easy to achieve that. Growing wealth in a world where inflation remains high and global uncertainties impact market conditions, the outcomes for financial decisions can’t always be controlled.
However, there’s a crucial factor that’s always under your control and that is - time. Time is indeed money, and nowhere is this more evident than your investments. As NRIs seek to secure their financial futures, it’s crucial to understand the real cost of delaying investments.
India’s growth trajectory continues to be a strong narrative for investors. The Reserve Bank of India (RBI) projects GDP growth at 7.2% for FY24-25, fueled by robust domestic consumption and increased infrastructure spending. For NRIs, participating in this growth offers an exciting opportunity - but delays in capitalising on these opportunities carry a heavy weight of lost returns on your investments.
Hidden cost
One of the most overlooked aspects of delaying investments is the silent but steady erosion of purchasing power due to inflation. While GCC’s inflation rate is forecasted to be at over 2%, it is still high enough to impact the value of your money if it’s sitting idle. Not to mention, if you have family back in India and want to save up for them, the cost of delay is even higher as India’s projected inflation rate is around 5% for FY24-25.
Your purchasing power could go down potentially by 10% in a span of 5-7 years.
Consider this: an NRI who invests Rs1 million today at an annual return of 8% would see their investment grow to nearly Rs4.7 million in 20 years. However, delaying that investment by just five years would reduce the end corpus to around Rs3.2 million.
The difference that you see is the tangible cost of delay you will end up bearing.
Managing market volatility
The volatility that global financial markets face today is quite evident. The US Fed rate cuts, geopolitical tensions and supply chain woes – various factors are responsible for driving this uncertainty, which affects your investment one way or the other. However, one should not expect a slowdown to start their investment planning.
In fact, investors should see this as an opportunity for a disciplined, long-term investment strategy. For instance, NRIs can look at guaranteed return plans as a hedge against volatility and inflation. These plans provide fixed, tax-free returns (for up to Rs500,000 annual premium) and are unaffected by market swings.
With the added benefit of life insurance, these products provide both security and growth. NRIs with Non-Residential External (NRE) accounts can also benefit from tax exemptions on returns, further enhancing the appeal of these investments.
Alternatively, for those comfortable with market-linked products, Unit Linked Insurance Plans (ULIPs) provide the dual advantage of investment and insurance. These have historically delivered returns of 10-12% over the long term.
With global markets poised for eventual recovery, staying invested in ULIPs for 15-20 years allows investors to ride out short-term volatility and benefit from market growth.
For NRIs with financial commitments across borders, such as supporting family in India while living abroad, it’s imperative to start early in order to combat inflation pressure. India’s growth story offers promising prospects for long-term wealth creation and a reason to not delay investing any further.