How NRIs can grow their money faster
HERE’S WHAT TO KNOW ABOUT STOCKS, BONDS, MFS AND FDS AND WHAT POSSIBILITIES THEY HOLD THIS YEAR
Although bank fixed deposits (FDs) are often considered the most preferred investment avenue for Non-Resident Indians (NRIs) investing back home in India, there is no denying the fact that this landscape has been changing in recent years.
A survey by India-based fintech platform SBNRI highlights that around 25 per cent NRIs worldwide prefer to invest in low-risk conventional financial assets like mutual funds (MFs) while 20 per cent of them prefer to keep their money in FDs.
In the UAE, 24 per cent NRIs prefer to place a safe bet by investing in MFs as opposed to investing in FDs, while about 27 per cent NRIs in nations like Australia, China, Qatar, Malaysia, Germany, New Zealand and Kuwait also prefer investing in MFs.
“Traditionally, investing in mutual funds was difficult due to the heavy paperwork involved. Many countries also made these investments subject to their terms and conditions. However, the emergence of fintech has transformed the market landscape, taking the process online,” wrote analysts at SBNRI.
Diversifying investments is key, even for NRIs
The golden rule of wealth creation and investments is to have a diversified portfolio of investments with the ability and flexibility to rein-in risks, which involves being proactive with your financial investments and taking steps in line with your long term investment goals.
“A significant overexposure to one asset class has the potential to erode wealth much faster compared to having a well-diversified portfolio. A
typical example of this is bank fixed deposits,” explained Jose Paul, an India-based banker, who manages different types of NRI investments from across the world.
“In recent years, FDs have given very low returns as compared to their counterpart investments and their returns when adjusted for inflation have in fact been negative. Diversification is therefore the name of the game if you were looking for reasons as to why you should invest in India.”
So what asset classes are good for investments in 2023? The stock market returns in India were abysmal last year, delivering an average returns in the range of 4-5 per cent across asset classes (bonds, equities, real estate). However, the lingering doubt that comes to an investor is — will this trend continue?
Will 2023 be a year of positive investment returns for NRIs?
“I would at least bet that it will be a year of positive returns and my reasoning is fairly simple. If our hypothesis that interest rates will peak out are right, then the Indian economy should be able to deliver double digit earnings growth at least for the next two years — so should your investments,” added Paul.
“It would be safe to say NRI investors have developed a degree of faith in building long-term portfolios and stock investing is slowly becoming a part and parcel of an Indian investor’s way of saving money and thinking about long-term wealth creation.”
Majority of the experts think general investor sentiment will see an uptick in 2023 and the Indian stock markets performance will be stellar in key areas including banking, automobiles, real estate and company stocks.
“As a result of the fact that bond prices and yields move in opposite directions, there is enough room for investment-grade bonds and other instruments influenced by interest rates to rise in value next year,” said Brijesh Meti, an India-based advisor on investments and related taxes.
“But an increase in debt defaults would alarm investors looking to invest heavily in the fixed-income markets. In India, two of the most popular low-risk, fixed-income investments are corporate bonds and bank fixed deposits (FDs).”
How NRIs can best invest their money in 2023?
In stocks, Meti expects housing and banking to be crucial sectors in 2023 due to their improved outlook, while in real estate he expects affordable housing to get a further push in the upcoming 2023 India Budget. He recommends investors to avoid export-oriented themes when investing in stock markets.
“While the blanket rule is to invest in companies with good prospects, reasonable valuations, and sound management pedigree, I would also advise stock market investors to stay away from commodity manufacturing companies, at least in the first half of 2023,” Meti added.
On the other hand, if you’re not looking to buy stocks this year, Paul advises investors to look out for a good portfolio of bonds. (By buying a bond, you’re giving the issuer a loan, and they agree to pay you back the loan on a specific date, and to pay you interest payments along the way, mostly twice a year.)
“For debt, investmentgrade-rated instruments should be on top of the list. With interest rates at peak, it is a good time to lock in a yield for your safer debt instruments. In particular, look out for corporate bonds issued by established companies,” said Paul.
“There is a new stream of alternate asset classes like ‘lease financing’ and ‘inventory financing’, which are also providing investors with great risk-reward ratios and are helping mitigate the volatility of stock markets.”