India is one of the fastest growing economies in the world, and it is one of the most favourable destinations for long-term investments, especially in good quality high growth businesses.
Ever since economic liberalization in 1991, the India growth story has been an unstoppable engine. India’s growth story is now taking an important turn with Prime Minister Narendra Modi’s government working towards an ambitious USD5 trillion target by 2024.
As elsewhere, the capital markets in India too have a strong positive correlation with the economy. To miss out on owning some good quality businesses in India is equivalent to missing out on a great opportunity. Many of them have multiplied manifold. Even on a dollar denominated basis, the capital markets and many active managed funds have given very decent returns.
Lets start this journey of introducing Indian equity capital markets with some of the basics of investing in Indian markets for overseas Indians.
Available Investment Avenues:
Actively Managed Equity Mutual Funds:- This is the best vehicle e (for many reasons) as of today to access the multi-baggers of tomorrow. Fund managers in active funds, when studied over very long periods of time, thave consistently outperformed the broad markets. In the short term, the results have been mixed depending on what your frame of reference is, but then, if you do not have a time horizon of atleast 7-10 years, why invest in equity markets at all?
Equity Portfolio Management Services: It could be a great option to invest through such services provided it suits your risk tolerance in the short to medium term in that these are typically more concentrated portfolios than a regular diversified equity Mutual Fund. They hold typically 15-18 well researched high conviction stocks.
Direct Equity: As a NRI, you can buy stocks directly from the stock market provided you have the technical knowledge, time and ability to sift good from junk data because here all you have is the internet and a few trusted friends to provide tips. But if you want just a basic representation of Indian Equities, by all means, buy the Index and go to sleep.
Other products that are linked to the equity markets: You could buy Unit Linked Insurance and/or Pension Products but there are other aspects you would be paying for than just investment management. Things like mortality costs and admin fees etc which you might not need if you are covered for Insurance in your current domicile. Also the National Pension System (NPS) is an option but may or may not be suitable dependent on your risk tolerance & your future retirement plans.
Operational procedures for investments at a glance:
NRIs need to have a Non-Resident (External) or a Non-Resident Ordinary account from which the funds can be used to invest in any of these vehicles. The NRE is an account whose proceeds are fully repatriable. The NROis one where proceeds upto US$1 million is repatriable. Complete your KYC process. Not complicated.
Opt to transact online via platforms to cut out the paperwork. But do consult a qualified professional advisor before you begin investing.
First things first: India may not be new to us but India equity investments may be a first for some of us. Have you made a financial plan for yourself? If not, get one made. Where does India investment fit into your plan? Do you need funds in the short, medium or long term? (the definition varies from person to person) If it is not long term, equities may not be the safest type of investment as it can lose value. Over time, the risk is vastly reduced.
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Note: Connected to India articles on NRI personal finance are intended to help Non-Resident Indians (NRIs) understand the increasingly complex world of financial investments. It is not a solicitation, recommendation, endorsement, of any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.