The year 2020 has been a phenomenal year of learning for India-centric NRI investments at large. The year put to test many preconceived notions and mindsets about investing and its associated risks and returns framework across various investment options available to NRIs.
Over the years, the one certainty in the life cycle of investments is to expect the unexpected. It is very important for investors to focus on the quality and type of their investment choices and decisions.
Every asset class has seen extreme volatility, thus reinforcing the importance and need to have a diversified portfolio. 2020 has also brought in the realisation that time in investments is more important than timing the markets, and finally, patience, discipline and tenacity with your investment portfolio will have its eventual rewards in the long term.
Over the years, the one certainty in the life cycle of investments is to expect the unexpected. It is very important for investors to focus on the quality and type of their investment choices and decisions.
There are multiple investment avenues available in India for NRI investors, some of the prominent choices and preferences are listed below.
Bank fixed deposits
This is by far the most sought-after form of investment. While non-resident external (NRE) deposits are tax free, non-resident ordinary (NRO) deposits are subject to normal tax rates. Depending on the bank interest rates for a 3-5 year period, deposits may vary between 5 to 7 per cent per annum.
Corporates bonds
These are in many ways similar to bank deposits and are issued by companies including banks. Depending on the issuer credit rating and risk profile, these bonds may be acquired from the secondary markets and yields on these bonds at this juncture range from 6 to 10 per cent per annum. The interest earned from these are taxable and depending on the income profile of the tax assessee, the surplus tax deduction, if any, will be refundable by the tax authorities. Corporate bonds are good alternatives to bank deposits with a potential to derive better returns.
Mutual funds
A range of debt mutual funds is currently available for investments – these funds typically invest into government securities, public sector undertaking (PSU) debt, banks and corporate bonds. Depending on the duration and type of funds, they have the potential to generate between 9 to 10 per cent per annum on a three-year perspective.
Apart from higher yields, when these funds are held for three years and above, the returns are considered as capital gains (with indexation benefits), which in turn will reduce the tax outflow — in some cases by more than 40 to 50 per cent, giving much higher returns to investors.
The aggregate allocations over time in above asset classes should ideally be in the range of 60 to 70 per cent of the disposable surplus available with the investor.
Equities
Investors have the option to invest directly in the shares of companies via the stock markets or through the mutual fund route. Both forms of investments are recommended for the discerning investor. A balanced basket of equity-linked portfolios has the potential to deliver 12 to 16 per cent per annum over the long term.
A part of the strategy should include systematic investments which has the potential to grow your investments in line with the market trends. These investments are also tax efficient. Equities should ideally constitute anywhere between 25 to 35 per cent of allocation by an investor.
Others
These includes gold (precious metals), life insurance, commodities, real estate-backed investments, structured products etc. Some of these are meant for sophisticated investors and require careful study and risk assessments.
The quantum of investment allocation over various asset classes depends on an investor’s risk appetite and above all, the time horizon that they are willing to commit on their investment journey.
An important aspect every investor should realize is that the retirement phase of their lives should be on an average anywhere between 20 and 30 years and there is an absolute need to plan and invest for their future cash flows, duly adjusted for inflation, during this critical phase of their lives. ●
The writer is CEO, Barjeel Geojit Financial Services
