Investment planning for NRIs is comparable to that of resident Indians, with a few exceptions. To ensure that their wealth is invested and managed optimally, NRIs must take the necessary steps.
NRIs are also required to ensure that their investments comply with the law. When a person is physically out of the country, this is not always simple. Here are some common, yet serious mistakes that NRIs may make. To have a sound financial strategy, avoid committing these mistakes.
1. Incorrect Real Estate Investment
NRIs typically invest in real estate for asset accumulation, emotive reasons, or prospective residency in India. However, many of them do not evaluate the relevant factors thoroughly. Before investing in real estate, NRIs should consider the following:
Return to India – A reasonable notion of when he will return permanently. If he plans to return after ten years, it may make sense to purchase the property at a later date, as the housing market and his personal and financial circumstances are subject to change.
Location of the house – The NRI must consider factors such as who will reside in the home and where it will be most advantageous for him or her. Would they prefer to live close to family and friends? Do they intend to spend their golden years near the beach? If they plan to reside alone, it may be best to select a location with all amenities, such as grocery stores and medical facilities. Check out the Top Retiree Locations in India.
Allocation size in an investment portfolio – NRIs are permitted to own both residential and commercial properties. NRIs typically have greater liquidity, which they typically invest in real estate. Considering that the current real estate market in Tier 1 cities is unattractive from an investment standpoint, it may not be a good idea to invest significant sums of money in real estate. If the NRI intends to return to India permanently, the situation is different. He may contemplate purchasing a home that corresponds to the proposed allocation in the investment portfolio.
2. Delay in Investments
Investing in India requires a substantial amount of paperwork. Moreover, the rules and compliance requirements frequently alter, necessitating constant updating of pertinent information. When abroad, it is not always simple to manage these aspects.
After returning to India, so many NRIs choose to invest. This would result in missed opportunities in multiple ways. The NRI will forfeit the opportunity to build wealth and generate returns from investments. The later one invests, the lower their returns will be. The power of compounding is most effective when investments are made as early and for as long as feasible.
3. Investment in Business Ideas Without Analysis and Research
If you are establishing a business in India, you should conduct a feasibility and market analysis. Plan before carrying out the operational task. Consider risk management. Employ individuals with the appropriate talents and credentials to perform for you. You can collaborate with a consulting firm when launching a business.
Do not let emotions and seemingly lucrative notions persuade you. Perform foundations. Consider the facts and evaluate the information from all angles before making a well-balanced investment decision.
4. No Estate Planning
Most NRIs do not count estate planning among their favoured activities. However, the future is uncertain, so it is essential to secure your finances as much as feasible. A testamentary plan outlines the disposition of your assets and the management of your financial affairs after your death.
There may be problems such as improper asset transfer and ignorance of all assets, etc. Therefore, it is essential for the NRI to draft a will so that he is aware of his assets and the quantity of wealth he has accumulated. The inheritance procedure can proceed without unpleasant incidents.
5. Misguided Investment Portfolio
When an NRI visits his bank, the relationship manager or other bank employees try to sell him or her products that suit their needs. He invests in products that are not suitable for his investment portfolio. A non-resident alien must avoid these investment pitfalls.
Instead, he should conduct research and an evaluation of his financial requirements and goals, and then choose the most suitable investment instruments. He can collaborate with a professional financial planner who has the requisite experience and knowledge in managing NRI investment portfolios. The financial planner will provide objective guidance and design a financial plan that has the potential to create wealth and maximise returns. The financial planner can also regularly administer the plan and make any necessary adjustments.
6. Excessive Fixed Income Investment
Fixed income instruments are considered secure investments because their returns are less volatile than those of other investments, such as stocks. However, fixed-income investments are not risk-free. Inflation and currency depreciate the true worth of these assets.
Fixed income securities are debt securities. By investing in them, you are exposed to the risk of default. There is the potential for non-payment of interest or principal in extreme circumstances.
Therefore, NRIs should have a diversified investment portfolio in order to deal with financial volatility and contingencies.