Financial planning for NRIS
your change in residential status will need you to evaluate your investments too. “For your current holdings you don’t have to do much. But once your status changes to NRI, you will have to update your KYC documents with the new residential status for mutual fund investments, and the demat account too. Once you are an NRI, you cannot source money from a resident Indian account. You will have to make investments through your NRE account. Some banks allow you to change the status of your existing bank account. However, most banks require you open a new NRE account,” said Srikanth Meenakshi, co-founder and chief operating officer, Fundsindia.com.
The products for investment also gets limited. “Some mutual funds will no longer be available to you. As of now only seven to eight mutual funds offer products to the US and Canada, NRIS, such as L&T Mutual Fund and Sundaram Mutual Fund. Some fund houses additionally require you to be physically present in India to make investments,” said Srikanth, who says 7-8% of his investors are NRIS.
For NRIS, some of the mutual fund products that gave you tax breaks, may turn out to be inefficient.
“Products such as ELSS (equity-linked savings scheme) and international funds turn inefficient for NRI investors. If you are in Europe, you are likely to have much better funds to invest in,” said Meenakshi. Like mutual funds, most corporate fixed deposits are also not available to NRIS.
If you have any kind of loan in India, you may want to reconsider doing the math. Many NRIS tend to re-evaluate their loans in India, if the countries they are moving to can offer them better interest rates.
For instance, if you had an education loan at 12% in India, and you now stay in a country where you have access to a loan rate of 3%, you may want to do the calculation to consider switching the loan—if such an option is available.
“If you are getting a lower interest rate loan as an NRI in the country of your residence, and you still save after factoring in the currency cost, you should go ahead. If you have multiple loans, you can do loan laddering— that is, pay off the loan with the highest interest rates first,” said Bangalore-based Shyam Sunder, managing director, Peakalpha Investment Services Pvt. Ltd.
Check before you leap
But before making any changes in your investment products, you need to settle down in the new country to understand your cash flows and expenses.
If you think you can’t handle the investments and taxation process all by yourself, you should take help from an expert. “You should tap into the local expertise in the country of your residence if the taxation process and investment products are not easy for you to understand,” said Sunder. And don’t get bogged down by all the changes that occur due to change in your residential status. You can start the process slowly once you have settled down.