Kairos Answers: NRI Edition

Here is the Transcript if you would like to read instead:

Jayalakshmi:

Welcome back to Kairos, a podcast on financial planning where we talk about doing the right thing at the right time. Hello Sam.

Samyuktha:

Hi Jaya and hello to everyone who’s listening in. Some of you may have had a chance to look at our trailer and here’s a special thank you for the questions that came in.

Jayalakshmi:

This episode is dedicated to NRIs where we answer all the questions on your mind. Being an NRI comes with a whole lot of benefits, but it does add a layer of complexity to your finances. And if you know how to handle this complexity, you can actually get ahead. The first question for today is “I’m in my 30s, is it too late to relocate to another country?”

Samyuktha:

• • • Why? an experience living abroad can’t be replicated
    • Living in India – career opportunities are there, it’s not like 20 years ago. Life is different abroad but not necessarily better.
    • Post-COVID world shifting to another country comes with its own set of challenges. Joblessness, unemployment, are serious challenges that you should prepare for mentally and financially. Example graduates struggling to find jobs – hiring freezes.
    • Setting expectations: migrating later, means spending more time in the workforce abroad, the resident status may be easy to acquire, citizenship harder.
    • Wait and invest? There are specific countries where you can invest in a country to earn citizenship – this is something HNIs do. Relocating is more relaxed in these cases.

Jayalakshmi:

That makes a lot of sense, life is different abroad and this decision to move is personal. We believe that it’s never really too late to set a goal and make it happen. All it takes is careful planning. What if

the tables were turned? What if you were living abroad in your 30s and want to come back to India in the next 5-10 years?

Samyuktha:

• • • Last episode a discussed in detail.
    • Agree with you completely on careful planning being powerful in helping you through life’s transitions.
    • You can’t be sure of what you want until you’ve seen all your options – that’s what financial planning is about.
    • What happens when you move back – career + finances?
    • What happens if you stay? How long until financial freedom?
    • Where’s the middle ground? (i.e. can your family move in with you? Even if it means a higher cost of living?)

Jayalakshmi:

The middle ground is the hardest place to find, and most of the time it doesn’t even look like the middle ground. It just looks like everyone’s compromising.

Here’s a question that I’m sure every NRI has thought of at some point. Where should you invest? Should you invest in the country that you’re living in, should you invest in India or should you invest elsewhere altogether?

Samyuktha:

Have you ever noticed that the question that everyone wants to ask, is always the toughest one to answer?

As an NRI, the answer is probably a combination of all three. Jaya let’s look at this from the lens of financial goals.

If you had a financial emergency, where would you need to spend the money?

Jayalakshmi:

Either in India or your country of residence – depending on where the emergency happens.

Samyuktha:

Exactly! So if your parents fell sick and needed to be admitted to the hospital, you would be paying those bills in INR. But if you fell sick and you are living abroad then you would be paying your bill in the country where you live.

Jayalakshmi:

So, I guess it definitely makes sense to have some savings in INR. Does that mean one should maintain two emergency funds? One in each currency.

Samyuktha:

That would be ideal – because then you’re covered regardless of where your emergency is and when it happens. The last thing you’d want to deal with is wire transfers and currency rates. The whole point of an emergency fund is to reduce the financial stress from these events.

But you may need to invest in another currency as well. I’m sure you know when investors need to do this.

Jayalakshmi:

Yeah, I can definitely think of a few examples. Recently, we were helping one of our Singapore-based clients with their financial plans. And they kept talking about how they wanted to send their kids to the US to study. They hadn’t decided about where they wanted to retire, but this they were very clear about. So for their children’s education – we allocated a portion of the investments towards that goal to be invested in US Markets.

Samyuktha:

That’s also something we would recommend for someone who’s a resident Indian. If you have goals in another country, you need to find a smart way to invest in that economy. Then your currency and inflation risk to a certain extent are minimized. NRIs need to look at their investments from a global asset allocation perspective.

Jayalakshmi:

For an NRI, I think the biggest question is where should they retire? Is it better to retire in India or abroad?

Samyuktha:

• • • Most financial decisions are personal as well. The best place to retire is where you want to retire.
    • Geographical arbitrage – working in an advanced economy living in a place with a lower cost of living.
    • Retiring in an advanced economy – low inflation, low returns. Debt – negative in most advanced economies.
    • Retiring in India – high inflation/ currency depreciation, high returns. India pre-COVID net real returns are positive.

Jayalakshmi:

And what if you don’t know where you want to retire?

Samyuktha:

Then plan for both scenarios – have a more balanced geographical asset allocation. The whole idea behind planning is so that you never feel like there’s a gun to your head. Planning is about keeping all those doors open and then walking into the one that has the best view.

Jayalakshmi:

That’s a really nice way of putting it. Should NRIs invest in India even if they’re not planning to come back?

Samyuktha:

• • • Interesting question. The long and short of it is yes, you should, and this boils down to global asset allocation.
    • Emerging markets exposure – for better returns. India is definitely one of the better performing emerging markets and a lot of global fund managers would concur. Demographics, economics, all in our favor as an investment destination.
    • Invest in India – through foreign feeder funds or directly through mutual funds, bonds, stocks, PMS, etc.

Jayalakshmi:

That makes sense. After all, India is home turf and most NRIs know the lay of the land. If you want some help working on your global asset allocation, you can reach us at +91-9500027285. Let me quickly summarize the top 5 highlights from this episode:

• • • It’s never too late to migrate out of the country. You just have to figure out why you’re doing it, what the alternatives are, and what price you’re paying for this transition.
    • Financial Planning is a very powerful tool that lays out all your options. Planning also highlights the consequences and advantages of choosing any one path.
    • NRI’s should have a global asset allocation that invests in India, their country of residence, and in the countries, they expect to realize their financial goals.
    • NRIs should consider maintaining two emergency funds. One for India and one for abroad.
    • There are advantages and drawbacks to retiring abroad or in India. This is more of a personal decision. Working with a financial planner can bring out the monetary angle.

If you enjoyed listening to this episode, please share it with your friends! Thanks for tuning in, see you next month.