Investment options for NRIs in USA

by Manshu on March 17, 2015

in Uncategorized

Nritk left the following comment on the Suggest a Topic page a few days ago.

NRITK March 8, 2015 at 5:21 pm [edit]

Hi manshu,
Lot has been written and discussed for resident Indians but very less is been discussed about the Investment options for NRIs in and outside India.
There is adequate information is available for investment in India but nothing is precise for investment options for outside India.
For eg. what about the retirement corpus for the NRI who is not planning to come back to India? What are options for him to invest outside India.
I know you would like to target the majority of your followers but I understand that you are also keeping your eyes open across the world so thought might be good if you can also target small but promising fans of your blogs.

Thanks for consideration and look forward something for NRIs.

Best Regards,
NRITK

If I understand this correctly, then this question really has to be answered in terms of what country do you live in and where can you invest while you’re in that country. Since I’ve lived in the US for a fair bit of time I’ll answer this from the perspective of a NRI in USA; the things that you have to take care of and the places where I used to invest, and you can hopefully draw some parallels from that.

Taxation

The first thing to keep in mind is taxation, and remember that the US is different from all other countries in the sense that they want to tax all  your income outside the US as well. You have to report your income in India, and then pay tax on it in US as well.

Retirement Accounts: 401k

The next thing to consider is a 401k account. A 401k is a retirement account and the best thing about this is that if you put in some money, your employer has to match that amount up to a certain limit, and that means free money for you. This account also has certain tax benefits that you should take advantage of and it has certain restrictions on withdrawing your money that you should be aware of but all in all this is a great option and something you should look into.

Invest in Real Estate

The third thing that comes to mind is real estate. The interest rates are so low and borrowing so easy that it is a no brainer to buy real estate in the US.

India based ETF

ETFs and Index funds are probably the best way to invest in the asset classes you like if you are in the US.

While in US, I liquidated all of my India stocks in order to simplify my tax situation and also focus on investments from one place. I still wanted exposure to Indian stocks, and in my opinion the best way to do that is to buy the India ETF INDY that is listed in the US and available in your brokerage account.

US Based Index Funds or ETFs

The next thing in my portfolio were stocks and index funds that gave you exposure to American equities. Equities are the best long term assets in terms of returns in my opinion so it is essential to have a healthy sized allocation to equities in your portfolio. For a retail investors, the best way to do this is to buy cheap index funds or ETFs that buy you a basket or large caps. The ETF SPY is a good bet for this.

Debt Funds

There needs to be some exposure to debt funds and an ETF that gives you exposure to debt in the US is a good hedge against the eventuality that the stocks market goes down which is likely to happen many times over in your investing career.

Stay away from NRE Fixed Deposits

These are some investing ideas that I could think of when it comes to investing in the US as an NRI. There is one specific thing that I think US based NRIs (who don’t wish to return or use money in India) should avoid investing in and that is opening a fixed deposit in a NRE account.

There are two reasons for this. The first one is that the Rupee has traditionally depreciated against the USD and that means when you covert those Rupees into Dollars you will get less than what you put in there. There has been no change in the economies of these two countries, and I think it is fair to assume that this depreciation is going to continue in the future also.

The second reason is that the interest from this investment is tax free in India but is still taxable in the US and that reduces the potential return from this asset for you. So, in case you are never going to use this money in India, I don’t think there is any benefit of having it invested in these type of fixed debt instruments.

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