Foreign investment in India: Overcoming financial hurdles for NRIs

There are many reasons to invest in India, but Non-Resident Indians (NRIs) face numerous hurdles that dampen their enthusiasm. Mutual funds may seem like the easy option, but getting started requires a lot of hassle and paperwork. Existing NRI investors face the added challenge of meeting new Know Your Customer (KYC) norms, adding further complexity to the process.

These challenges can be especially daunting for those who are not physically present in India, as they often need assistance navigating the process. But with the right guidance and patience, NRIs can overcome these obstacles and successfully manage their investments.

The process of struggle

One of the major hurdles faced by NRIs is changing their KYC status from resident to NRI and updating their existing investment and demat accounts.

Veera Nemmadi, a 34-year-old architect based in Singapore, experienced many challenges in managing her investments as an NRI. Having a portfolio before moving to Singapore in 2019, she had to convert her resident demat account to NRI. The extensive documentation required by brokers took considerable time and effort.

“The extensive paperwork required for Zerodha felt like a never-ending task to me. It took a ton of paperwork and time. But the real challenge was when it required attestation by a statutory or gazetted officer. Getting the documents signed at the Indian embassy in Singapore was cost-prohibitive,” he says.

The attestation process required for the account switching process in India was also a major hurdle as most local authorities were unaware of the process. “I had to plan the attestation process when I visited India. But it was tough to find lawyers in tier-3 cities who were familiar with the process. Luckily, my cousin who works in a local court came to my rescue and helped me with the attestation process. Without his help, I might have been struggling with this step even now,” he added.

Even after the conversion of demat accounts from resident to non-resident Indian was complete, Veera had to make manual adjustments or contact brokers frequently to get accurate transaction prices, which took around three months.

Akarsh Aggarwal, a Singapore-based software engineer, faced a similar issue. It took several months to change his demat account from resident to non-resident Indian (NRI). “It was a tough journey. It took almost nine months from the time I tried to contact Zerodha. Though I didn’t encounter any issues with the documentation, it was difficult due to the lack of support from customer service,” says Aggarwal.

“The customer service team asks us to send documents but the instructions are not clear. Once we send them, something is missing again. Sending documents to India is expensive and tedious to deal with. They do not understand the process. We definitely do not prefer investing in India because of the complex process when there are better returns outside the Indian market,” he added.

Seeking advice and tax implications

Apart from process challenges, NRIs often struggle to find the right investment advice that aligns with their goals. Financial and tax planning in two countries can be complicated due to different regulations and compliance requirements. Many advisors lack expertise in cross-border investing, resulting in poor investment strategies. This makes it difficult for NRIs to get personalized and effective advice.

When Palak Chauhan and her husband immigrated to the US in 2014, they faced unique challenges in managing their finances as non-resident Indians. Limited knowledge and tax complexities made it difficult to navigate the Indian financial market from abroad.

“Initially, we relied on family advice to manage our investments in India. We invested in mutual funds, real estate and pension funds (PF). But as our investments in the US expanded, we wanted more control and wanted to diversify our portfolio across both the countries,” Chauhan says.

After struggling with investing for several years, they finally sought advice from an advisor. “We tried to figure it out on our own for a few years but regretted missing out on a key window of opportunity to reap the benefits of compounding. So, we finally sought advice from Vaibhav Tandon of Enriching Wealth Solutions. He developed a mutual fund portfolio customised to our risk tolerance, investment horizon and goals, and helped us comply with NRI guidelines,” she says.

The tax complexities of both countries were another challenge. “US and Indian laws imposing double tax on our mutual funds added complexity. Filing FBAR and FATCA forms, estimating quarterly US taxes based on portfolio performance required close monitoring and a reliable tax partner. Finding competent professionals in India who could understand our situation as NRIs was a long and arduous process,” she adds.

After searching hard, they finally found a tax accountant who could help them streamline their tax filing process.

Finding the right advisor

For NRIs, investing in India can be difficult due to the complex financial environment and regulations, but finding a trusted advisor can make a big difference.

Having worked in Tanzania for the past three years, Akash and Vrushali had managed to save a considerable amount of money and now had a surplus every month that they wanted to invest in India. Not knowing what to do, they contacted Dipen Shah, founder of NRI FinOne and a close friend of Akash.

Besides offering investment advice, Shah also guided people through the entire process online, from changing PAN status, opening NRE (Non-Resident Overseas) and NRO (Non-Resident Ordinary) accounts and completing Central KYC (CKYC) for investment purposes, without having to travel to India.

“At NRI FinOne, we are making it easier for NRIs to manage their investments in India. Right from updating PAN status to opening NRE and NRO accounts, we guide our clients through the entire process and handle CKYC for investment purposes entirely online, so there is no need to travel to India,” Shah said.

Rules

NRIs need to follow some important precautions when investing in India.

Keep your KYC details up to date like PAN status, bank account etc. To be compliant with Indian regulations, use an NRE or NRO account for investments.

Diversify your portfolio by considering options like mutual funds, index funds, and strategic ETFs.

Don’t overlook the tax implications both in India and in your country of residence. Make sure you file the necessary documents like FBAR and FATCA.

Never invest without thorough research and professional advice. Consulting a trusted financial advisor can help you navigate complex issues and make an informed decision.