A thought for NRIs – Where can they invest?

The NRIs, more often than not, have a problem. This problem does figure in conversations between any two NRIs on most occasions. This is a problem which does not appear to have a clear-cut answer. This is a problem which makes resident Indians turn green with envy! This is perhaps a problem of plenty and the problem is “which is the best asset class for investment in Indian Rupees”.

Before trying to attempt an answer, we need to remember that NRIs get some sort of special treatment on their Indian Income from Indian Income Tax regulations. For example, interest income from repatriable NRE Fixed Deposits with banks in India are totally exempted from income tax.

Four of the popular asset classes amongst NRIs are Stocks, Gold, Bank Deposits and Real Estate. While real estate as an asset class has many advantages such as scope for appreciation and income from rent and leasing, I am not very enthusiastic about real estate as an asset class for investment (for self-occupation, it is a must!). My reservations on real estate investments are mainly on the following aspects :

  • Real Estate investments involve very large initial outflow of funds and many a times one has to avail credit facilities for purchasing real-estate.
  • The income stream from real-estate i.e., rent is often very less when compared to the capital outlay,
  • While one can be happy about appreciation, the illiquidity in the market and legal and other hassles such as black money transactions makes it quite challenging to divest real-estate assets.

Therefore, my analysis is confined to remaining three popular asset classes i.e., Stocks, Gold and NRE Fixed Deposits. The analysis is based on income accrued on Rs 100 invested in each of these asset classes on a specified day and for a specified period. This income is pre-tax income.

Let us first have a look at what one was able to  earn on Rs 100 invested on 1st January 2013 and continued to be invested till 30th June 2013 (i.e., for a period of 6 months)


Similarly let us have a look at what one was able to  earn on Rs 100 invested on various dates spanning up to 3 years and continued to be invested till 30th June 2013 :

 Now let us have a look at the return on investment over different periods, as mentioned above:


 What is this analysis telling us?

  1. Investment in gold over last six months period has been a disaster. Investors have earned a negative annualized yield of 42.12% over the last 6 months. Over the last three years, investors have earned annualized yield of 8.44%
  2. Stocks have been pretty inconsistent with returns. Over the periods annualized, returns have ranged from (-) 2.16% to 13.91%. Over a longer period of 3 years, stocks gave an annualized yield of only 3.02%
  3. NRE Fixed Deposits have performed really good. The yield has been very steady and conforming to the theory of time value of money – normal yields. Higher the term, the yields have been higher in respect of NRE Fixed Deposits. Besides, interest on NRE Fixed Deposits are tax free!

Hope that the above inputs will help my NRI friends in deciding their asset class for investment. However remember not put all your eggs in one basket!

6 thoughts on “A thought for NRIs – Where can they invest?

  1. I do agree with all the ideas you have presented in your post. They’re really convincing and will certainly work. Nonetheless, the posts are too brief for beginners. Could you please lengthen them a little from subsequent time? Thanks for the post.

  2. Wonderful analysis Satishji….
    I would have utilised this piece of article had I been continued as AGM NRI Services. But even now I can advise my friends and relatived living abroad and a few colleagues who are working in NRI branches to take a leaf out of this. If you permit me I will share this article with my friends and relatives…

  3. Excellent analysis. Your professionalism has surfaced along with your attitude to help investors. I couldnt agree with you more on the final judgement; and would like to add two more advantages – bank deposits in general are easily encashable without much / any legalities.Your hard earned money is safe even if the returns may be slightly less when stocks and gold boom.
    And of course if the government is good and ready to utilise the deposit for right development, you can be proud of your contribution to the society. The government better be good!
    Keep it up, and looking forward to more articles from your keyboard.
    Best wishes,

  4. Thanks Satish. The cartoon representation of you on top of the page looks professionally done. Who did it?

  5. Satish, Unbeatable analysis. You are both a Professor and an Investment Analyst bundled into a banker!

  6. Very good analysis. Satish. In times of Gold boom, the table may turn otherwise. The yields covering a period of 5 -10 years may throw more interesting statistics, especially on gold and real estate.

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