Advising a non-resident Indian (NRIs) on investments requires a different approach compared to advising a resident client. This is due to the difference in tax laws, investment restrictions, different risks and time-zone mismatch.
Here are some points that you need to keep in mind while dealing with NRI clients.
NRIs have certain investment restrictions. Advisors need to be aware of the available investment options before recommending investments. NRIs can invest freely on repatriation and non-repatriation basis in bank deposits, equity and debt markets, NPS and mutual funds as per RBI guidelines. However, NRIs from USA and Canada have investment restrictions in many mutual funds owing to FATCA guidelines. In addition, NRIs are not permitted to invest in small saving schemes or public provident fund (PPF).
RBI also permits Indian origin NRIs or PIOs (persons of Indian origin) to invest in non-agriculture property. Before recommending real estate investment option, you need to keep in mind that transfer of funds back to foreign country after selling off the property is not that easy. Advisors should ensure that their clients are aware of the restriction on remittances so that they do not purchase a property with capital gains as the main objective.
In case of real estate transactions, you need to ensure that the process is smooth. Having a power of attorney from the client will be of great help in this regard.
Regulatory and Taxation aspect
It is important to note that NRI investments need to comply with two sets of regulations – India and country of residence of the NRI. In addition, you need to be well versed of the various taxation laws of the two countries and how these laws affect the client’s investments.
While taxation is not so much an issue for Middle East NRIs, you need to understand tax implications of your client living in countries like USA who have significantly different practises in terms of investment income reporting compared to India.
Currency risk mitigation
While investment performance is critical, NRIs face an additional risk of currency fluctuations. In other words, the NRI’s return on investments depend upon the investment returns and currency movement. If Rupee appreciates compared to their home country currency, it boosts their returns. On the other hand, Rupee depreciation eats into their overall portfolio gains. In the last one year, Rupee depreciated by close to 12% vis-à-vis USD (from 65 to 73). Thus, NRIs investing in India will see a proportionate reduction in their overall portfolio gains.
Therefore, you need to explore for available currency hedging tools for NRIs.
There are three main categories of NRI bank accounts: NRE (non-resident external accounts), NRO (non-resident ordinary accounts) and FCNR (foreign currency non-resident account). All these three categories have distinct features. While FCNR and NRE accounts are non-taxable in India and can be easily transferred outside India, NRIs cannot open these account in joint name with an Indian resident. NRO accounts are taxable and have restrictions on fund transfer outside India. However, they come in handy if the client wants to open a joint account with an Indian resident or needs money for transactions in India.
Have strong technological platform
Leverage technology to provide NRIs with a robust online platform to interact with you and process transaction. Today, multiple online transaction platforms integrate with your business. This will allow your NRI clients to access their portfolio and transact from any corner of the world. Moreover, you can interact with these clients online through email, teleconferencing and video calls.
Swift access to client documentation is paramount, as an advisor cannot easily meet up with NRI clients to collect documents. You should ask your NRI clients to keep such documents with their relatives or close friends in India so that you can collect them easily when required.
Your clients will benchmark you to the same service standards that they see in their country of residence. In order to provide better service, you will need to need to adjust the timing of communication according to their time zone and offer them all information related to their investments regularly.