NRI Talk: From Art to Angel Deals: NRIs are broadening their investment canvas, Sachin Sawrikar decodes
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In an evolving global landscape where financial opportunities span geographies and asset classes, Non-Resident Indians ( NRIs ) are redefining what it means to invest in India and beyond.Traditionally drawn to real estate and fixed deposits, today's NRIs are diversifying into everything from mutual funds and GIFT City investments to private equity, tech startups, and even fine art.Emotional ties to India remain strong, but a new wave of affluent and informed NRIs is steering toward a more strategic, globally aware investment mindset.In this edition of ETMarkets NRI Talk, Sachin Sawrikar , Founder and Managing Partner at Artha Bharat, unpacks the shifts in NRI investment behavior—from the surge in remittances and tax arbitrage benefits in zero-tax jurisdictions, to the growing appetite for innovation-driven sectors and alternative assets.Whether it's capital preservation or long-term value creation, NRIs are expanding their portfolios with greater purpose, caution, and confidence. Edited Excerpts –A) NRIs have consistently played a pivotal role in India's economic development, with their financial contributions delivering significant macroeconomic impact.In 2023, India received an estimated $125 billion in remittances, reaffirming its position as the world's largest recipient.These inflows act as a critical buffer against the country's persistent merchandise trade deficit, bolstering foreign exchange reserves and supporting current account stability.India's growing appeal to NRIs as a long-term investment destination is underpinned by its resilient economic fundamentals, ambitious structural and regulatory reforms, and a dynamic, fast-expanding startup ecosystem.These factors not only create diverse investment avenues but also signal long-term economic stability and innovation potential.Furthermore, the enduring emotional and cultural ties that many NRIs maintain with India blends financial intent with a deep-rooted personal connection.As financial affluence among NRIs grows, many increasingly diversify their investments across geographies, guided by their country of residence and global market opportunities.The United States, as the world's largest economy, continues to be a preferred destination—particularly for investments in equity markets and technology startups. Other favored destinations include the UAE, Singapore, and the United Kingdom, each offering distinct strategic advantages.One of the key factors driving NRI investment in markets like the U.S., U.K., and Singapore is the presence of stable legal systems and favorable tax regimes, which provide clarity, protection, and long-term financial planning benefits.These jurisdictions also offer robust infrastructure for establishing family offices, making them attractive for wealth preservation and intergenerational planning.A) NRIs investing in mutual funds from countries that have a Double Taxation Avoidance Agreement (DTAA) with India benefit from tax exemptions, as the agreement typically stipulates that capital gains taxes are to be paid in the country of residence, rather than in India.As a result, such investors are generally not liable for taxes on the sale of mutual funds in India. For countries like Singapore, UAE, and Mauritius, where capital gains are not taxed, NRIs can enjoy the benefit of zero tax on mutual fund gains.However, it's important to note that this benefit applies specifically to mutual funds and not stocks. This distinction arises because mutual funds are structured as trusts, which fall outside the scope of capital gains taxation under most DTAAs.A) NRIs often make substantial investments in real estate, as many plan to return to India and seek property to reside in. This is especially true for Gulf-based NRIs, who do not have access to citizenship or residency rights in their host countries.While Real Estate Investment Trusts (REITs) and fractional ownership options have emerged as potential alternatives, they have not gained significant traction among NRIs. This is largely due to the relatively low yields offered by these investment models.In India, REITs face an additional challenge: the rental yields in the real estate market are generally low, making them less attractive to investors.Moreover, India is one of the few countries where there is a negative spread—the cost of borrowing is higher than the rental yields from properties.This disparity further diminishes the appeal of REITs, as the returns from these investments do not adequately compensate for the cost of financing.A) Some of the issues that need to be addressed when making investment in India, are:Many NRIs invest in rupee-denominated deposits in India, often attracted by the tax-free nature of interest income. However, these deposits offer low net returns when considering currency depreciation. The weakening of the Indian Rupee (INR) over time can significantly reduce the actual returns in the NRI's home currency, making these investments less attractive in the long run.NRIs often have concentrated portfolios, primarily invested in real estate or equity and mostly within a single country (India). This lack of diversification exposes them to higher risks. It is crucial for NRIs to broaden their investments across different asset classes, sectors, and geographies to minimize risk and maximize returns.Many NRIs depend on advisors, agents, or friends for investment advice without verifying their credentials or track record. This lack of due diligence can lead to fraudulent schemes or poor investment decisions. Numerous cases have surfaced in the media where NRIs have been duped by untrustworthy individuals promising high returns or offering dubious investment opportunities.Owning real estate and other assets in India without proper estate planning can lead to complex, time-consuming legal issues for NRIs and their families. The transfer of assets, especially property, can become a sticky process involving prolonged legal proceedings. NRIs should ensure they have a clear will, trusts, and an understanding of inheritance laws in India to avoid complications for their heirs.A) It's challenging to generalize about all NRIs, given the diversity in backgrounds, financial goals, and experiences. However, there are some common attributes that many NRIs tend to share when it comes to investments.These are more general trends rather than rules, but they provide insights into the typical NRI investment mindsetMany NRIs come from humble backgrounds and, as a result, tend to be more risk-averse when it comes to investments. They generally prefer low-risk, stable options like real estate and fixed deposits to ensure capital preservation. This conservative approach stems from their desire for financial security and a sense of stability, both for themselves and their families.India holds strong emotional appeal for many NRIs. There's a deep-rooted cultural connection, and many of them view India as a future homecoming destination, which makes it a preferred investment locale. Moreover, most NRIs are more familiar with the Indian market and its dynamics, which gives them a comfort level when investing in Indian stocks, mutual funds, real estate, and other assets. The familiarity and trust they have with Indian systems make India a natural choice for their investments.Tax efficiency is a major concern for NRIs, particularly those from countries like the Gulf, where there are no personal income taxes. These NRIs tend to prefer tax-free investment options or low-tax structures, such as exempted income from real estate or tax-free government bonds. They are also keen on Double Taxation Avoidance Agreements (DTAAs) that help minimize tax liabilities between their home country and India. This focus on tax optimization plays a significant role in shaping their investment choices.A) NRIs continue to show a strong inclination toward specific sectors and asset classes in India, driven by a blend of emotional ties, perceived stability, and the country's economic potential. Below are three of the most preferred investment avenues among NRIs:1. Real EstateReal estate remains a cornerstone of NRI investment portfolios due to its tangible nature, perceived stability, and potential for long-term capital appreciation. Many NRIs view it as a future residence if they plan to return to India, while also benefitting from rental income in the interim.2. Mutual FundsSystematic Investment Plans (SIPs) in Indian mutual funds are increasingly popular among NRIs, particularly due to the country's robust economic growth and the higher return potential from mid- and small-cap stocks.As NRI portfolios mature, there's growing awareness of the need for global diversification. Investing through funds in GIFT City allows NRIs to access international markets such as the U.S., U.K., and other developed economies, while still operating under a jurisdiction they understand and benefiting from favorable tax treatment.3. Fixed DepositsNRE fixed deposits remain a traditional favorite due to their tax-free interest, capital safety, and the perception that funds are safer in Indian banks. However, with persistent INR depreciation, the real return on rupee deposits has diminished over time.NRIs should consider USD-denominated deposits in GIFT City, which combine the security of fixed income with currency risk mitigation. These deposits offer an opportunity to retain earnings in hard currency while still leveraging India's regulatory clarity and tax benefits.While NRIs continue to prefer traditional investment options like real estate, mutual funds, and fixed deposits, platforms like GIFT City are opening new doors for globally diversified, tax-efficient investments—all within a framework that NRIs are comfortable navigating. This evolution marks a shift from emotional investing to a more strategic and globally aware approach to wealth management.A) NRIs tend to gravitate toward sectors where they see strong long-term potential, global relevance, and a certain degree of familiarity. The following sectors consistently rank high on their investment radar:1. Information Technology (IT & Tech Services)A large number of NRIs, particularly from the US and UK, have backgrounds in tech and are familiar with the sector's dynamics. India's position as a global hub for IT services, with strong players in software development, cloud services, cybersecurity, and outsourcing, makes it a natural investment destination.2. Healthcare & PharmaceuticalsIndia is now firmly established as a global supplier of pharmaceutical products and active pharmaceutical ingredients (APIs).The sector benefits from both rising domestic demand and robust export growth, especially post-COVID.3. Private Equity & Startups (Tech-Focused)Increasingly, affluent NRIs are participating in angel investing or private equity deals, especially in sectors they understand—tech, fintech, edtech, and healthtech. These sectors offer high growth potential and align well with global innovation trends.4. Real Estate (Residential & Commercial)Real estate remains a tangible, long-term asset that offers both emotional security and income potential. Residential property is often acquired for personal use or as a future retirement home, particularly for Gulf-based NRIs. Commercial property is favored for its rental income generation and potential capital appreciation in high-growth urban centers.These sectors combine familiarity, global relevance, and sustainable growth, aligning well with the typical NRI investor's mindset—long-term, moderately conservative, and value-driven.A) There is growing interest among affluent NRIs in non-traditional assets, particularly art, which is increasingly seen as a potential store of value and cultural investment. Indian contemporary and modern art, in particular, is gaining traction due to its emotional resonance, aesthetic appeal, and global recognition.While luxury cars and high-end watches are being actively acquired, they are still viewed primarily as lifestyle or personal indulgences, rather than as structured, long-term investments. The collectible value of these items is acknowledged but not yet fully integrated into wealth planning strategies by most NRIs.A key constraint in this space is the specialised knowledge required to invest in such assets. Understanding authenticity, provenance, valuation, and appreciation trends involves a steep learning curve.As awareness and expertise improve, these alternative investments may gradually become a more significant part of sophisticated NRI portfolios, especially among those seeking diversification beyond traditional financial and real estate assets.(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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