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Sitting in a London hotel room, I reflected on my meetings that I had on the first day of my overseas trip. They were with people I had been meeting over the past couple of years, and they were still in "thinking" mode. Not sure if this was the right time to enter Indian equity markets, not sure how cumbersome the processes would be, and worried that expenses on fund management were on the higher side.
A DIFFICULT START
For an individual to invest in India directly, he needs to show that he is a person of Indian origin. An Indian passport would serve the purpose. Else, he needs to apply for an OCI (Overseas Citizen of India) card, or a PIO (Person of Indian Origin) card. For this he needs to show that he was born in India, or any of his previous two generations (parents and/ or grandparents) were born in India. The process takes anywhere from 3 weeks to 2 months. Simultaneously, the person looking to invest in India needs to apply for a PAN (Permanent Account Number) online. He will also need to provide documentary evidence of identity proof and address proof, both overseas, and in India.
MFS VS INVESTING IN STOCK DIRECTLY
For buying or selling shares, one needs to have a broking or trading account, a demat account (to store the shares in) and of course a bank account that is linked. For NRIs, the cost of transacting directly stocks is higher than that for resident Indians. NRIs must use their equity accounts to build a long term portfolio as active trading turns out to be expensive. Further, restrictions on derivatives also exist. It may be prudent for them to consider mutual funds as a simpler way to start investing in India.
NO NEED TO BE IN EQUITIES ALONE
While every NRI seems to be focusing on equities, they seem to miss out a simple trick of improving their returns without enhancing risks considerably. The long-term trend for the rupee is expected to be stronger. The investor is sitting with £10,000 in his bank earning less than 2% pa. In fact, yields on 5-year bonds are 2.25% pa. At the current exchange rate, Rs 6.75 lakh will be transferred to India and can be invested in 5-year government bonds which yield 7.40% pa. At the end of 5 years, the Indian investment will be worth Rs 16.27 lakh, and the UK investment of £10,000 will have risen to £21,175. That essentially means that, even if the exchange rate was to weaken for the rupee to Rs 76.84, the investor will have achieved break even.
DEBT MUTUAL FUNDS
Instead of buying bond directly, if the investment is made through debt mutual funds, the investor has the flexibility of aiming for a higher return with addition of corporate bonds to his portfolio, having the liquidity to withdraw whenever there is a spike in returns and also taking advantage of currency movements to make additional returns on currency. Of course, all this requires understanding of debt markets, currency markets and also tax implications, both in India and abroad. So don't try this on your own without expert advice.
Source :BY LOVAII NAVLAKHI ,http://epaper.timesofindia.com/
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