I’m an NRI too and have seen decent growth over the past 10-20 years in the equity I had back when I still worried in India. It’s worth about 1-2 Cr now.
That said, the INR has seen steady depreciation and the growth is really sub par when looking at your portfolio in global terms (USD). Add to that the constant hassles of compliance with the various mutual funds in India, reporting and FBAR/IRS returns in US and it really starts being not worth it.
Same issue with the properties I own. Yes my flat has doubled in INR terms but I purchased when USD was at 55 and it’s 83 now. If I had instead kept the money here in the US, I’d be far better off. Selling the property, then dealing with the TDS regime, etc. is just hassles I don’t need.
Tread carefully.
Thanks this is useful. My thought process is something like this - treat this 1cr as sort of VC money . Just invest and forget . I’m fortunate enough that this is not life changing money for me . A CAGR of 18-20 percent/year has been touted for Indian MFs over the last 20-25 years. If I can capture growth like this over the next 20ish years .. it might be worth it. But all the issues you mention are also something to think about .
The biggest issue with investing in India is the near constant depreciation of the INR. If the USD-INR rate holds along with the projected growth rates then yes the additional reporting hassles are worth it.
I’d definitely avoid property though. The 21% TDS withheld on full sale amount (not on profit,mind you) creates a huge cash flow issue if you plan to deploy the proceeds elsewhere, even in another property.
20% cagr? What world do you live in?
Just look at the growth of Indian index in dollar terms (etf name INDY) and that’s the returns you can expect before taxes. Don’t believe a word the mutual fund industry pushes to you, they are a bunch of f*kin liars.
Also don’t cherry pick specific funds and come up with 20% number, it won’t work in the future.
In short, India is a ok place to diversify your risks, other than that, don’t expect to become a millionaire in 5 years.. reminder that this is an emerging market, in other words, there will be as many growth stories as the number of stock market scams, you need to tread with extra caution
All great points but let me offer a slightly different perspective. I am an investment professional and have worked with multiple firms that invest in India/Asia. Also an NRI so understand some of the pain-points
1. There is no doubt that in US$ terms, the US market has done the best amongst all major markets across the world (across 10/15/20/25 years). This is a fact
2. But, Indian markets have returned the 2nd best (in US$ terms) amongst all global major markets including China/EU/Japan.
3. The major drag on India returns as you rightly point out has been the constant depreciation of the INR (c.4-5% annually) since India has been a current account deficit (CAD) country
4. However, the CAD situation is improving as India is finally able to get its act together in manufacturing (thanks to different PLI schemes) and infrastructure (we are now 100% electrified and building roads at incredible pace). Exports in the past 5 years are up 50% despite the covid bump in 2020/21. Part of this is also a shift away from China, as companies try to diversify away from their acute China dependence. So India has a major geopolitical tailwind in its favor
5. If you sort of extrapolate this surge in manufacturing & services exports, its quite likely that from a CAD of 3% of GDP, we could actually become a current account surplus country! Now this is a regime shift as far as the currency is concerned.
6. In addition, if you look at the US$, its fundamentals are quite shaky with $33tn of debt and record fiscal spending over the next 10 years. The only way this deleveraging adjustment can happen is by relative depreciation of the US$.
So in essence, India has multiple tailwinds - geopolitical position, an emerging manufacturing sector, improving CAD, strong capital spending on infra and capex and a robust new-age tech startup ecosystem. If (and it's a big IF) the government doesn't do stupid stuff, we are well placed to benefit as China slows both because of demographics and geopolitics. Hence the excitement for India's future.
All in all, I would definitely "allocate" some part of my money to India either through India MFs, PMS or some overseas funds. Generally overseas funds have done worse than local funds in terms of returns so that should be a consideration. Also as far as i am aware, for US residents/citizens, US taxation on Indian mutual funds are just crazy so please consider all these factors before you make a judgement.
Are there specific PMS you would recommend that cater specifically to US citizens and can maintain the necessary compliance?
Also any thoughts on using a trust to get around the PFIC reporting requirements? I’m just not sure how prevalent trusts are in India or how they are taxed.
hey sorry for the late response, just seemed to have missed this. As far as trust etc is concerned, please check with a US tax expert but my hunch is it may not be that easy. The PFIC regime was brought in to catch tax avoidance on an institutional scale and discourage these structures completely. So i suspect it is not an easy thing to avoid. On equities, actually India has a fairly simple flat 15% short-term/10% long term tax rate irrespective of resident or nri. So its not painful in that sense
On the PMS thing, I refrain from suggesting since I would recommend a friend who does this and hence, am biased in my reco. However, with the disclosure - if you still need the reco, I can connect.
As a US resident, don’t invest in Indian Mutual Funds! You will be putting yourself in an IRS tax compliance nightmare due to PFIC rules.
Just google and you will find what I am referring to - and then thank me :)
It makes a whole lot of sense to me from a geographical diversification angle to sort of spread or dilute a bit of risk in favour of a bit of returns. One thing to consider is using emerging market ETFs available in the US to invest in instead of going the mutual fund route which for US based NRIs has come across as a hassle. Where I am based, whilst I don't have the same taxation and compliance issues a US NRI might face but I use the IUSN etf to invest in emerging markets.
Investing for me is not an emotional or ideological decision . I put my money where I feel confident it’ll grow and be protected. This is a strange response.
I didnt mean it “ invest emotionally in your motherland”, i meant being Indian, you can have a better understanding and feel of the strong growth factors in favour of India vs other developing countries.
Ofcourse we all want growth and capital protection. Thats a given. But we all want to it ‘slightly better’ than the bank rate, thats why we are looking at investing options.
I mentioned that you’re rich just to highlight that if (and a big if bcoz your choice of words in the response put me off) you’re really looking at generating an alpha here; 1cr in developing market like India won’t really make much difference to your overall networth after 17years; even if small/midcap mfs of India were to beat the world markets.
You are only thinking in terms of growth in INR. OP (and me for that matter) are non residents so we look at growth in terms of USD. In that regard India stock market and property returns are very sub-optimal.
Your comment reminds me of my real estate broker who keeps telling me to buy more property saying it’s doubled since you bought. Yeah sure it has but then the rupee also depreciated from 55 to 83 so what did I really make?
Agreed. But there is a famous investing quote, “This time its different”.
While I agree with dollar/inr fall (being in international business myself, have experienced it from 45 to 83 in last 20years), the de-dollarisation in terms of world trade is bound to happen, nothing is permanent (already India is aggressively pursuing options and recently signed with UAE to trade in rupee for oil purchase).
Moreover, the idea behind this post was to look at options beyond US/developed countries. Else, ofcourse people do have billions invested in US markets. OP wanted lateral thinking here to generate better returns, isn’t it?
Its easier to maintain finances in the country you live in. If no plan to come back to India, Invest only in US as you are more up to date with the events in residing country plus filling taxes is a piece of cake.
I’m an NRI too and have seen decent growth over the past 10-20 years in the equity I had back when I still worried in India. It’s worth about 1-2 Cr now. That said, the INR has seen steady depreciation and the growth is really sub par when looking at your portfolio in global terms (USD). Add to that the constant hassles of compliance with the various mutual funds in India, reporting and FBAR/IRS returns in US and it really starts being not worth it. Same issue with the properties I own. Yes my flat has doubled in INR terms but I purchased when USD was at 55 and it’s 83 now. If I had instead kept the money here in the US, I’d be far better off. Selling the property, then dealing with the TDS regime, etc. is just hassles I don’t need. Tread carefully.
Thanks this is useful. My thought process is something like this - treat this 1cr as sort of VC money . Just invest and forget . I’m fortunate enough that this is not life changing money for me . A CAGR of 18-20 percent/year has been touted for Indian MFs over the last 20-25 years. If I can capture growth like this over the next 20ish years .. it might be worth it. But all the issues you mention are also something to think about .
Pfic taxes will kill your returns
Whats pfic taxes? And can you tell me more about it?
Google it
The biggest issue with investing in India is the near constant depreciation of the INR. If the USD-INR rate holds along with the projected growth rates then yes the additional reporting hassles are worth it. I’d definitely avoid property though. The 21% TDS withheld on full sale amount (not on profit,mind you) creates a huge cash flow issue if you plan to deploy the proceeds elsewhere, even in another property.
Is the 21% TDS applicable to Indian citizens also ?
It applies to non residents. If you are resident, whether foreigner or Indian, your TDS rate is 1% with balance (if any) due at tax filing.
20% cagr? What world do you live in? Just look at the growth of Indian index in dollar terms (etf name INDY) and that’s the returns you can expect before taxes. Don’t believe a word the mutual fund industry pushes to you, they are a bunch of f*kin liars. Also don’t cherry pick specific funds and come up with 20% number, it won’t work in the future. In short, India is a ok place to diversify your risks, other than that, don’t expect to become a millionaire in 5 years.. reminder that this is an emerging market, in other words, there will be as many growth stories as the number of stock market scams, you need to tread with extra caution
All great points but let me offer a slightly different perspective. I am an investment professional and have worked with multiple firms that invest in India/Asia. Also an NRI so understand some of the pain-points 1. There is no doubt that in US$ terms, the US market has done the best amongst all major markets across the world (across 10/15/20/25 years). This is a fact 2. But, Indian markets have returned the 2nd best (in US$ terms) amongst all global major markets including China/EU/Japan. 3. The major drag on India returns as you rightly point out has been the constant depreciation of the INR (c.4-5% annually) since India has been a current account deficit (CAD) country 4. However, the CAD situation is improving as India is finally able to get its act together in manufacturing (thanks to different PLI schemes) and infrastructure (we are now 100% electrified and building roads at incredible pace). Exports in the past 5 years are up 50% despite the covid bump in 2020/21. Part of this is also a shift away from China, as companies try to diversify away from their acute China dependence. So India has a major geopolitical tailwind in its favor 5. If you sort of extrapolate this surge in manufacturing & services exports, its quite likely that from a CAD of 3% of GDP, we could actually become a current account surplus country! Now this is a regime shift as far as the currency is concerned. 6. In addition, if you look at the US$, its fundamentals are quite shaky with $33tn of debt and record fiscal spending over the next 10 years. The only way this deleveraging adjustment can happen is by relative depreciation of the US$. So in essence, India has multiple tailwinds - geopolitical position, an emerging manufacturing sector, improving CAD, strong capital spending on infra and capex and a robust new-age tech startup ecosystem. If (and it's a big IF) the government doesn't do stupid stuff, we are well placed to benefit as China slows both because of demographics and geopolitics. Hence the excitement for India's future. All in all, I would definitely "allocate" some part of my money to India either through India MFs, PMS or some overseas funds. Generally overseas funds have done worse than local funds in terms of returns so that should be a consideration. Also as far as i am aware, for US residents/citizens, US taxation on Indian mutual funds are just crazy so please consider all these factors before you make a judgement.
Yes US taxes on unrealized capital gains if invested in mutual funds. As they are treated as passive income.
Are there specific PMS you would recommend that cater specifically to US citizens and can maintain the necessary compliance? Also any thoughts on using a trust to get around the PFIC reporting requirements? I’m just not sure how prevalent trusts are in India or how they are taxed.
hey sorry for the late response, just seemed to have missed this. As far as trust etc is concerned, please check with a US tax expert but my hunch is it may not be that easy. The PFIC regime was brought in to catch tax avoidance on an institutional scale and discourage these structures completely. So i suspect it is not an easy thing to avoid. On equities, actually India has a fairly simple flat 15% short-term/10% long term tax rate irrespective of resident or nri. So its not painful in that sense On the PMS thing, I refrain from suggesting since I would recommend a friend who does this and hence, am biased in my reco. However, with the disclosure - if you still need the reco, I can connect.
As a US resident, don’t invest in Indian Mutual Funds! You will be putting yourself in an IRS tax compliance nightmare due to PFIC rules. Just google and you will find what I am referring to - and then thank me :)
Yes that's why I used my father's account to invest
How are you doing that? Is it still working out for you?
You can open a demat acct for your father through zerodha/groww and use his bank acct to invest
OP what did you end up doing? Are you still investing?
Yes
Would you mind connecting with me on a call. Please dm me if you are okay with it.
INR has lost about 5% annually with respect to USD on average. Better go with some EM ETF
Avoid. Look up pfic for more info.
It makes a whole lot of sense to me from a geographical diversification angle to sort of spread or dilute a bit of risk in favour of a bit of returns. One thing to consider is using emerging market ETFs available in the US to invest in instead of going the mutual fund route which for US based NRIs has come across as a hassle. Where I am based, whilst I don't have the same taxation and compliance issues a US NRI might face but I use the IUSN etf to invest in emerging markets.
[удалено]
Investing for me is not an emotional or ideological decision . I put my money where I feel confident it’ll grow and be protected. This is a strange response.
I didnt mean it “ invest emotionally in your motherland”, i meant being Indian, you can have a better understanding and feel of the strong growth factors in favour of India vs other developing countries. Ofcourse we all want growth and capital protection. Thats a given. But we all want to it ‘slightly better’ than the bank rate, thats why we are looking at investing options. I mentioned that you’re rich just to highlight that if (and a big if bcoz your choice of words in the response put me off) you’re really looking at generating an alpha here; 1cr in developing market like India won’t really make much difference to your overall networth after 17years; even if small/midcap mfs of India were to beat the world markets.
You are only thinking in terms of growth in INR. OP (and me for that matter) are non residents so we look at growth in terms of USD. In that regard India stock market and property returns are very sub-optimal. Your comment reminds me of my real estate broker who keeps telling me to buy more property saying it’s doubled since you bought. Yeah sure it has but then the rupee also depreciated from 55 to 83 so what did I really make?
Agreed. But there is a famous investing quote, “This time its different”. While I agree with dollar/inr fall (being in international business myself, have experienced it from 45 to 83 in last 20years), the de-dollarisation in terms of world trade is bound to happen, nothing is permanent (already India is aggressively pursuing options and recently signed with UAE to trade in rupee for oil purchase). Moreover, the idea behind this post was to look at options beyond US/developed countries. Else, ofcourse people do have billions invested in US markets. OP wanted lateral thinking here to generate better returns, isn’t it?
What’s NRI?
FLIN ETF
Its easier to maintain finances in the country you live in. If no plan to come back to India, Invest only in US as you are more up to date with the events in residing country plus filling taxes is a piece of cake.