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Active money management is critical to financial health. If you are a resident Indian, your task is easier compared to an NRI. When you live in a different country, you need to consider many things: your bank account, investments, assets, taxes, the exchange rate, and so on. Let’s look at 10 important money management tips that NRIs should bear in mind to stay financially fit.
- Key bank accounts: NRIs are not allowed to keep their money in normal savings account in India like a resident Indian. So once your residence status changes to NRI, you must convert your saving account to an NRO account to transact without any restrictions. You can use the NRO account to deposit all your income from an ancestral asset or existing investments.
- Power of Attorney (POA): Before you leave India, you need to assign caretakers for your assets. So, if you have relatives or close friends whom you can trust, you should appoint them as caretakers of your property. They would need a power of attorney to perform all tasks related to the NRI’s assets in his/her absence. For example, if an NRI wants to purchase or sell a property in India, it may not be possible for him/her to come to India only to sign the documents. So, a representative who holds the POA can perform all such tasks on his behalf.
- Where to invest? The investment rules for NRIs are simple. They can easily invest in shares, real estate, mutual funds, bank fixed deposits, etc. As interest rates in India have been trending downwards for the past three years, debt instruments are not very attractive today. But equity, mutual funds and the real estate market remain attractive. The equity market is scaling new heights each passing month, and India remains one of the best-performing stock markets in the world. Likewise, mutual fund inflows have grown rapidly in the last two years. In 2017, the Indian mutual fund industry witnessed the largest ever fund inflow. The realty market is now safer than it used to be. With RERA and GST implementation, NRIs can get huge benefits from the realty market. The sector is also getting lots of support from the Indian government and it is expected to grow consistently in the coming years.
- Buying a property: NRIs can buy real estate – both for commercial or residential purposes – but they cannot buy agricultural land or farmhouses. However, there is no restriction on an NRI inheriting a farmland or agricultural property. It is mandatory that all transactions for property buying and selling happen through an Indian bank and in Indian currency. NRIs must obey FEMA rules in real estate transactions.
- Is life insurance useful for NRIs? NRIs can buy an Indian life insurance policy subject to fulfilment of certain conditions. If you are planning to settle back in India or if you still have lots of connections there that keep you attached to the homeland, you can think of buying a life policy here. You must check the tax implication of such insurance policy in the country where you live. You should ascertain the medical check-up requirements and whether insurance companies allow you the flexibility to submit the report from your country of residence.
- Buying a health policy: NRIs often seek medical treatment in India because the healthcare is competitively priced and NRIs may also have a social network — family or friends — for support. NRIs can buy a health policy in India, but it is important to take care of certain points. It is important to check the geographical coverage of the health policy, because you may also need the policy for a treatment in your country of residence. Health insurance companies should have a good presence in your country and cover most common healthcare needs. You can claim the tax benefit under Sec 80 (D) for the premium paid towards the policy and reduce your tax liability for income accrued from India to that extent.
- Managing your loans: If you have pending loans back in India, you should make a simple analysis. Check the loan interest rates in your country of residence. If the rates are lower, consider taking a loan there and repaying the ones in India. For this, you would also have to factor in the exchange rate, processing costs, and foreclosure costs. If there are significant long-term savings, you should take this option. Similarly, if the interest rates India are cheaper than the ones in your country of residence, take a loan in India to foreclose the loan.
- Consider the exchange rate fluctuation: You should be mindful of currency rate fluctuations while investing in India or while taking a loan. For example, you invested US$ 1000 i.e. INR 63,000 (Let $/INR = INR 63) in an asset in India in for one year, and that investment returned 10 percent per annum. While redeeming the investment, the currency value changed to INR 68. if the rate had stayed at INR 63, your investment value would have been US$ 1100. But at a rate of INR 68, your investment value is US$ 1019.11, implying effective returns of just 1.9 percent. To maximise your investment gains, you must be aware of the impact of exchange rate fluctuations.
- Adjusting for inflation: Inflation in India and the country of your residence may vary. So, investments should be planned accordingly. Suppose in your current country, the inflation rate is 2 percent and you are getting an ROI of 6 percent PA on an investment, while in India, the inflation rate is 6 percent. So, it is easy to figure out in this example that though the ROI is the same in both countries, if you invest in India, your money will depreciate faster than in foreign countries. You must make these calculations before you plan an investment in another country.
- Maintain financial discipline: As an NRI, you need to take care of tax laws and investment scenarios in both countries. It important that maintain financial discipline and consult your financial advisor regularly.