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Motherland calling: NRI investments in India

August 07, 2009 13:17 IST
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For Saurav, today was a bit unnerving. He had received a call from his cousin Abhay in Ahmedabad and for once he was unable to make a quick decision.

Saurav Patel had migrated to the United States ten years ago after his graduation. He had done his MS from the University of Pennsylvania. He works now with Microsoft and is well settled in Seattle.

For him, a feeling of patriotism for motherland India surfaces once in a while, particularly when he wants to make investments. Although it was also true that India seemed a greater and better bet given the situation prevailing in the US.

He was a shrewd investor and he knew of every possible way to invest and multiply his money. A sneak peek into his portfolio would show:

  • NRE bank accounts into which he deposits surplus dollars every month. His fixed deposits gave low returns compared to the general interest rates in India, but the interest was tax free. Also anything was better than the 0% he gets for his deposits in the US.
  • NRO bank accounts into which his income from India, rentals from his properties, etc are maintained. His father, who holds his Power of Attorney, meticulously handles all of it.
  • Rental residential properties, one each in Ahmedabad and Mumbai.
  • A rental commercial property which he developed from the land his grandmother gifted him at Ahmedabad.
  • A strong portfolio, of blue chip stocks, in his demat account -- the one he opened after he gained NRI status. His bank where he has his NRE account, helped him with the opening of his PIS (portfolio investment scheme) and demat account and the process was actually easy.
  • He carefully dematerialised all the shares his father had gifted him when he got married.
  • A trading portfolio of mid cap and small cap stocks which his broker buys and sells depending on market conditions and research tips. Though he was skeptical of this method of investing, this portfolio has given good returns in the last year when the equity markets tanked and then recovered.
  • Mutual funds, quite a bit of them -- equities, call money market, bonds. However some mutual funds that have entities registered in the US as sponsors or partners do not accept his money. But that's ok. His father, who holds his Power of Attorney, meticulously handles all of it.
  • The moment he got his VISA he went and opened a PPF account through the local Post office with minimum investment of Rs 500. He knew as an NRI he cannot open a PPF account, but can invest if the PPF account was opened before he gained NRI status. He continues to invest in this account up to the maximum limit every year.
  • He also owns a few ULIP products which he bought last time he visited India, some child plan and retirement plans.
  • He bought gold exchange traded funds in the US. He bought the argument that the US dollar is likely to depreciate as a result of the bailouts and inflationary situation that might follow. Gold might well provide him the necessary hedge. It made sense to buy gold in the US rather than in India because he knew that the domestic price of gold in India is dependent on the dollar prices and that fluctuates quite a bit.

He couldn't benefit from the high interest rates and relative safety offered by investment options like NSC, KVP and Post office small savings schemes as they were not available for NRIs.

But now this call from his cousin Abhay in Ahmedabad kept him mulling over a lot of issues. This was basically about an investment in a new NRI community that is being developed 30 km from Ahmedabad, in the outskirts of the city. The price was attractive after the recent meltdown in the real estate market in India and the property was sure to appreciate.

He generally borrows from his bank in the US for buying properties in India. He used to get these loans pretty cheap and he anyway had a good track record. But now, would his bank lend him money? Also would he be able to repay? He did not know, because the job scene in the US is not hunky dory and all that uncertainty over President Barack Obama's policies on discouraging hiring of H1B holders. He was keen on buying the property, but was not sure. He kept thinking about it all night.

Next morning, he contacted his father and explained his plan. His father was thrilled. He quickly mailed all his papers to get a loan approved in India.

NRIs are preferred borrowers in India and they accepted his assets in India and other property rentals as supportive income streams.

His could own that property now. . . and maybe enjoy it someday too. This seemed to work out and he walked to work with a spring in his steps, happy about his decision to get back to India soon.

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