Here's How NRIs Planning to Settle in India Should Invest

If you are an NRI and considering settling in India in the coming years, you need more than just a plane ticket. You need careful planning for a successful transition back to your motherland.

The thought of moving back can be quite exciting. But wait! Do you know what Indian city you should settle in? Do you know what are the best ways to create a monthly income in India? These are some questions you need to answer for yourself before zipping up that suitcase.

It's going to be more than just a move. You will have to start afresh and adjust to the new circumstances and neighbourhood. And the last thing you want is an unplanned adventure. Be well prepared and ready to navigate your investments to ensure a smooth financial transition.

Let's delve into what you need to consider, where you should invest and the logistics of moving back.

Homecoming Checklist for NRIs

#1 Pick a city to retire

Are you dreaming of a serene retirement in the hills or the bustling energy of a metro? The city you choose impacts your retirement corpus. According to the Nomad List, you will require a minimum of $950 per month for a comfortable retirement in India. 

A CII-Anarock Survey shows that the top Indian cities that NRIs eyeing are - Hyderabad, NCR, and Bengaluru.

While shortlisting a city, you should consider factors like cost of living, health care facilities, infrastructure, climate, and social support groups. These are important and play a crucial role in a comfortable retirement. 

#2 Have your own house

In 2019–20, NRI investments in India’s real estate accounted for approximately 10% of total investments in the sector. Given the real estate’s popularity, you should not just invest (for the sake of returns) but also plan to own a house in the city you wish to retire.

Even if you do not like any property right now, you can plan to invest in a property once you are back. Section 54F of the Income Tax Act provides for capital gains exemption for Indian long-term capital assets (mutual funds, shares, bonds, gold, etc.) other than residential property. The sale proceeds are tax exempted if reinvested for purchasing or constructing a house property.

#3 Get yourself an insurance

With medical expenses skyrocketing each year, having health insurance for you and your family is critical. As an NRI, you can get health insurance in India for yourself and all financial dependents. Getting health insurance early on will reduce the waiting periods. Your policy will be all set for claims when you make the move back to India.

Similarly, you can also purchase life insurance with your NRI status. Taking life insurance sooner will keep the premium payments low. 

#4 Creating an income stream

Ensure a steady income stream to support your lifestyle and expenses in India. Wondering how to do that? You can diversify your investment across asset classes like mutual funds, fixed-income instruments, annuity plans, and real estate for rental yields.

You can invest in mutual funds and systematically withdraw (SWP option) money on a regular basis. Similarly, annuity plans are a type of insurance product that offers a guaranteed regular income stream for the policyholder. 

Rental income can also be a regular source of income for you during retirement. However, this doesn't necessarily mean you need to own a physical property. You can get your hands on fraction real estate investments, REITs or InvITs. 

#5 Winding up financial assets abroad

To ensure a seamless transition, it's best to divest your financial assets in the current country. So here’s what you can do, liquidate those assets that might become a liability - from a peace of mind or taxation perspective. Don’t leave expensive assets that may require your constant attention to manage them.

How Should Returning NRIs Build Their Investment Portfolio?

 If your return is certain, then investing heavily in Indian markets early on can work wonders. Simply put, the sooner you invest in India, the larger your corpus will be when you return. 

Another reason is you don't have to worry about transferring your assets while moving back (trust us, it can be a hassle). Furthermore, the possibility of Indian markets outperforming the US markets is also quite high. Thus, don’t delay any further, and get started with your investments in India. 

Pick the right growth assets and diversify

India's economic growth offers a golden investment opportunity.

Allocating a significant portion of your investment portfolio to Indian securities is a prudent move. This mitigates currency risks and aligns your assets with the local market, creating stability as you move back.

Stocks and Equity Mutual Funds

Invest in growth-oriented assets like stocks and equity mutual funds to earn high returns.

The timing of your return - be it in 10 or 5 years - significantly influences your asset allocation. Balancing risk and diversification is crucial. With time on your side, you can consider higher exposure towards equities. However, avoid overexposure to very high-risk investments.

Equity mutual funds are a great way to seek exposure in the Indian markets. These require minimum effort from your end to invest and manage investments. The diversified portfolio will average out the impact of market volatility in the long term.

Debt Mutual Funds

To mitigate volatility, balance with stable assets like debt funds or large-cap equities. Gradually shift from high-risk to low-risk assets as your return nears.

Tailor your investment strategy to your goals—whether seeking regular income or long-term wealth appreciation. Consider retirement goals, risk tolerance, and liquidity requirements to shape the right investment mix for your portfolio.

Gold

Gold serves as an excellent hedge against inflation. Its inverse correlation with the stock market works as a good diversification tool to shield your portfolio from market fluctuations. Financial advisors suggest allocating 5%-10% of your portfolio to gold holdings.

Gold ETFs and Gold Mutual Funds are an option for you to invest in gold. These ETFs track the domestic price of physical gold, with one Gold ETF unit equivalent to one gram of gold.

And here’s how you can create a personalised portfolio…

with iNRI. iNRI’s Smart Investing tool will suggest the right investment products based on your profile - age, investment horizon, risk comfort, investment preferences (equity, debt, commodities), and investment amount. 

Alternatively, you can also pick and invest in top mutual funds based on their theme categorisation. For example, hybrid funds (that offer a perfect mix of equity and debt), alternatives to bank FDs, precious metals, etc. 

Stay informed and seek expert advice

Staying updated on market trends, regulatory changes, and economic indicators is crucial. Additionally, seeking advice from financial experts in NRI investments like iNRI can provide invaluable insights. Their guidance can help you navigate the complexities of fund transfers, investments, and compliances and optimise your portfolio for your return to India.

Understanding how Indian stocks perform during election periods can provide better investment insights. Check out our blog on What Happens to Indian Stocks Before General Elections?

You can write to us at tax@goinri.com to get answers from iNRI's tax experts for free.

For long-term wealth creation, SIPs offer a disciplined and cost-effective approach. Here's a blog on SIP: The Best Way to Invest in Mutual Funds that might interest you!

Understanding PFIC rules is critical for NRIs investing in Indian mutual funds while living in the U.S. Read more about it on our blog.

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