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Category Archives: Global Investing How & why?

September 13, 2020
  1. What is a global investment?

Global or international investing means investing in different global investment instruments so that one’s financial portfolio becomes geographically diversified. This international investment not only diversifies the portfolio but also helps to spread the investment risk among various foreign markets and companies thereby ensuring the security and long term safety of the investment.

  1. What is Indian government’s policy on investing globally?

As per the Reserve Bank of India (RBI), Indian government has opened up doors for investing and remitting abroad as it believes that joint ventures abroad promote economic co-operation between India and the host countries. Since globalization of trade is a two-way process, integration of the Indian economy with the rest of the world with all its attendant benefits is achieved through overseas investment. It is the reverse of Foreign Direct Investment (FDI) and can be termed as Indian Direct Investment abroad.

Thanks to a liberalized economic policy from 1992 onwards and huge foreign investments by Foreign Institutional Investors (FIIs) and Non Resident Indians (NRIs), India’s foreign exchange reserve now stands at several billion dollars.

This huge fund has permitted the Reserve Bank of India to implement a much liberalized foreign exchange policy. In 2004, RBI allowed an Indian citizen to invest $25,000 US abroad. Over the years, this amount has been increasing steadily and as of today, $250,000 US per year per individual can be remitted/invested outside of India. This scheme is popularly known as Liberalized Remittance Scheme or LRS.

Indian HNIs can certainly benefit from this policy changes. Unfortunately, due to lack of knowledge and awareness regarding investing globally, a negligible number of Indian investors have taken advantage of the LRS.

  1. What are the types of assets that Indian HNIs can invest in outside of India?

In general, Indian citizenscan invest in equity shares, debt instruments, foreign portfolio, real estate, life insurance premium (except term insurance) including opening of foreign account abroad for investment. The payment can also be remitted to close relative(s) as a gift or for purpose of family maintenance. Detailed information is available on official RBI website.

  1. Since the start of LRS, how much fund has been remitted/invested by Indian HNIs abroad?

According to the RBI, the Indian remittance has increased from $72 million US in 2007-08 to $19 billion US in 2019-20. In just over a decade, we are witnessing a huge change in the spending power and spending pattern of Indian HNIs.

  1. If Indian investors have remitted/invested $19 billion US in the last year, do you think Indian HNIs are savvy enough when it comes to foreign investments?

Economic liberalization, economic boom and the aforementioned LRS has resulted in the remittance of more than $19 billion US outside of India last year alone.

However, when we examine this data more closely, we find that a major portion of this remittance by Indian HNIs is expenditure and a very small portion of the money has been actually invested. Here is the RBI data for Indian outbound remittance in 2019-20 (in million US$)

  • (i) Deposits – 623.37
  • (ii) Purchase of immovable property – 86.43
  • (iii) Debt/equity – 431.41
  • (iv) Gift – 1904.53
  • (v) Donations – 22.32
  • (vi) Travel – 6954.20
  • (vii) Maintenance of close relatives – 3437.46
  • Medical expenses –33.88
  • (ix) Studies abroad – 4989.04
  • (x) Others –268.74

We can easily infer from the above data that the spending habits of Indian HNIs have seen a significant shift from domestic to international.

However, though Indian HNIs spend a substantial amount of their wealth abroad, their investing and saving habits have not changed and are still largely concentrated in the domestic domain. If this trend does not change, it can eventually result in financial distress for Indian HNIs who continue to spend abroad but do not invest abroad.

  1. Why do you say there could be financial distress for Indian HNIs?

Let’s take a simple example. 5 crore INR was equivalent to 1 million US$ in 2008. However, at the present time, this 5 crore INR is equivalent to 635,000 US$. This is due to the fact that the US dollar has been growing stronger year after year. Its exchange value increased from Rs. 49 in 2008 to Rs. 76 in 2020.

So when Indian HNIs continue to invest in India but spend a substantial amount of their money abroad, they are not getting the full value for their domestic investment, eventually decreasing their net worth and spending power. If the same amount is invested abroad, then the spending is balanced out because currency is not devalued as you are spending in the same currency.

Let’s take another example of an Indian HNI who invests in stocks and shares in India. He may be earning really well in India but Dollex 30 Chart of the Indian stock market shows that in the last 12 years, investing in shares has not given any substantial return to the Indian investors in terms of the US dollar. So if this HNI wants to go abroad for a vacation, send his children abroad for higher studies or spend on foreign luxury items, the investments he has made in India must give higher returns to balance out the currency risk/fluctuation.

  1. What is the top foreign spend for Indian HNIs?

Careful analysis of the remittance data gives us an insight as to how Indian HNIs are spending their wealth abroad. As can be clearly seen, spending for children’s foreign education is on top of the list for Indian HNIs.

  1. In what type of asset classes can one invest outside of India?

There are primarily four options available. They are:

  1. The first option is investing in foreign stock markets and diversifying your portfolio globally. Due to recent advancements in technology, there are several platforms available whereby Indian investors can invest in stocks, debts and other instruments of more than 50 different stock markets of the world from a single account on any device. However, the lack of knowledge of foreign stock markets makes it difficult for Indian brokers and investors to venture into it.
  2. The second option is an investment in global real estate. Even though Indian investors prefer investing in real estate as compared to other asset classes, this investment in international real estate is limited to countries in the Middle East and Far East such as Thailand. However, there are excellent opportunities available for real estate investment in countries such as USA, Canada, UK, Australia, New Zealand and many European countries.

    In many of these countries, the real estate market is booming so much that the government has restricted foreign investors from making investments in real estate or implemented additional welcome tax for foreign investors. In some countries, it is the buyer who has to pay all the transaction expenses and brokerage.

3. The third option is expansion of business. Not only big corporations and multi-nationals, now even Indian SMEs and exporters can invest out of India and expand their business by establishing their presence in international markets.

4. The fourth option is to invest in a second passport by way of Residency & Citizenship by Investment (RCI) programs. These RCI programs are being offered by more than 30 countries in the world. Investing in a second passport should not be perceived as abandoning your country but be seen as an opportunity to achieve many financial as well as non-financial benefits such as NRI status, visa-free travel, quality of life, expansion of business, portfolio diversification and retirement abroad.

The most important benefit that Indian parents can reap by investing in a second passport is the reduction in their child’s foreign university education fees by almost 80%.

  1. How can investing outside of India be beneficial to Indians, Indian companies and the Indian economy?

The liberalization of the Indian economy began in 1993-94. At that time the object was on attracting foreign investments to India and that policy continues till date. Over the years the strength of the Indian economy grew and the Indian government started focusing on creating bilateral trade between India and the rest of the world. The government wanted to create a bigger customer base for Indian companies and to that end, the Government of India has implemented certain regulations and policies from 2007 onwards to encourage greater outbound investments by Indian companies and individual Indian citizens.

These policies were created by the Indian government with a long term vision to not only encourage Indian multinational companies to make investments outside of India but also strengthen the Indian economy by assisting individuals and Indian SMEs to venture outside their comfort zone and promote India’s interests overseas.

One may ask how Indian HNIs and businesspersons can benefit from all this? The answer is simple. The world is increasingly becoming a global village and investing outside of India is a powerful tool that can be used by Indian HNIs and businesspersons not only for their personal advantage but also to contribute positively to the Indian economy by promoting bilateral trade. More NRI businesspersons mean more bilateral trade and increased remittance of foreign currency and business back into India.

Foreign investment can also be a highly effective and dependable strategy for Indian HNIs to assert their presence in the global business market. India is perhaps one of the last developing economies in the world where venturing outside of the country to conduct business has yet to become a way of doing business. Yes, there are businesspersons who have taken that risk but their percentage is very low as compared to our population and potential.

In 2020, investing abroad can be equated to creating a second option for your family and expanding your business interests. If we look at countries such as China, Taiwan, Vietnam and Korea, the businesspersons and HNIs of these countries have made personal as well as business investments in other countries, thus providing their families and future generations with a second option along with economic growth. It’s high time that Indian businesspersons and HNIs also start thinking in a similar manner.

  1. The Indian real estate and the stock market are booming right now and very soon India is likely to be a favorite destination for foreign companies. In such a scenario, why should Indian HNIs consider investing outside of India?

‘Do not put all eggs in one basket’.This old saying has been proven true time and again especially with reference to national and international economic markets. In most cases, investors have failed to understand this old saying and have lost money heavily by investing it in just one type of market.

Every investor must consider four types of risk to their investments. These are – political risk, interest rate risk, currency exchange rate risk and most importantly, in the case of Indian HNIs, new spending habits.

There is no exact mix one can work out for investing abroad but traditionally, one can take ratio of 70% local market and 30 % foreign market.

 Do not be tempted to put too many eggs in one basket, no matter how attractive and convincing it may seem. As the Indian government now allows investments abroad, it is time that Indian businesspersons look closely at new avenues of investing outside of India and diversifying their portfolios.

A few years back, investing in mutual funds was frowned upon but now we say, ‘Mutual Funds SahiHai!’

Similarly, in the next few years, Indian investors will say,

‘Foreign Investment Zaroori Hai!’

October 10, 2018

Recently, I had an opportunity to conduct a seminar at one of the largest export promotion organisations in Mumbai, India.

After the seminar I received a lot of feedback from the audience regarding the difficulties Indian exporters are facing in exporting their goods. The common obstacles cited were government policy, international trade policy, lack of financial support from the government and insufficient knowledge about import-export regulations of other countries.

I also received feedback that it was easy to establish and do business in African countries, in the Middle East and with our neighboring countries but as far as Western countries were concerned, Indian exporters are having a hard time making their mark.

While interacting with the participants, I was surprised that none of them had given a thought to the Residency and Citizenship by Investment option as a means to expand their export business from India.

I believe this is directly related to the visa regulations of many Western countries. Exporters from China, Taiwan, Korea and even Pakistan (Group countries) have used these regulations to their advantage, while Indian exporters have been quite reticent or unforthcoming in doing so.

Exporters from these Group countries have recognized that in developed or Western countries, there are three types of buyers / importers:

  • Large buyers who come to their countries and establish purchase offices in the country. For example – Walmart.
  • Large importers who import goods and depend on foreign exporters such as them to sell them these goods.
  • Small buyers / importers who do not physically visit their countries but wish to sell the goods of these exporters from offices or shops in their home country.

To sell goods to these buyers / importers, export companies in the Group countries have realized that having a presence in the importer’s country is the most efficient and effective way to sell their goods, especially to the class (ii) and (iii) category buyers.

To have this presence,  exporters from the Group countries take advantage of the Residency and Citizenship by Investment programs of all major countries in the world. Through these programs they obtain permanent residency/citizenship of the respective country. This then allows them to conduct business in their adopted country as local businessmen.

Let’s take an example of a Green Card holding Chinese exporter versus an Indian exporter who has no residency status in USA.

A Chinese exporter will have the following advantages over his Indian counterpart while selling goods to an American importer:

  1. As the Chinese exporter has a USA Green Card, he can start his own company in USA, purchase a warehouse and office and ship goods to the American importer immediately so that they are received within 1 or 2 days. For an Indian exporter in India, it will take several days to process the order and ship out the goods. He will have to deal with a huge amount of paperwork before his goods reach USA.
  2. There is no time difference and hence communication is faster and efficient for the Chinese exporter. Whereas an Indian exporter has to be really prompt and time conscious.
  3. Payment is easy – for the importer to make and exporter to receive.
  4. Confidence level of the buyer/importer is better while doing business with a US-based Chinese supplier/exporter than India-based exporter who has never seen or interacted with.

Unless and until Indian exporters learn to explore different options such as Residency and Citizenship by Investment to their advantage, they will always fighting a losing battle against exporters from other countries.

The best analogy that can be used to emphasize this reality is that if you wish to fight, you need to get into the boxing ring. You cannot stand outside the boxing ring and try to beat your competition.

January 5, 2018

Reducing a child’s foreign education fees by 80% is the number one reason to apply for residency and citizenship by investment. 

What is Residency and Citizenship by Investment?

Residency and Citizenship by Investment is an immigration program introduced by many countries that allows successful businessmen, HNIs, and Start-Ups to obtain residency and/or citizenship (passport) of that country. This is a widely used tool by HNIs in all developed and developing countries to achieve a variety of goals.

Why invest abroad?

For Indian and Asian businessmen living in an emerging market, making investments abroad can be for a variety of reasons. If the goal is to make an investment in a foreign stock market to obtain higher returns on investment, it can be easily done by opening an online account with one of the premium banks and making an investment.

However, if the goal is not just financial returns but also achieving non-financial gains, one needs to look very closely at the country of choice and their investment rules.

Discussed below are some of the major reasons that prompt HNIs to make investments in foreign lands.

Under the Residency & Citizenship by Investment Programs, it is possible to obtain residency and/or citizenship of other countries through legitimate investment.

Following are the major reasons for investing abroad with residency and citizenship benefits:

  1. Children’s education:

Several surveys show that Asian parents give top priority to their children’s education and are particularly keen that they study abroad. This is probably due to the fact that the approach and attitude towards education in Western countries is very different compared to that in Asian countries. The number of Indian students studying abroad has increased many-fold in past 5 years. In the year 2010, more than 400,000 Indian students were studying in different countries around the world. HNIs and Upper Middle Class (UMC) of India can plan their children’s study in foreign countries by making investments in risk-free but unconventional products in many countries of the world. There are excellent opportunities available for investing in countries like the USA, Canada, the UK, and the Caribbean islands which guarantee subsidized education for children of these investors.

Moreover, these investments are likely to give residency status to the family, giving the child a jump start in his/her career after finishing studies. During summer months, the child would be working in a proper job of his/her liking rather than working in unrelated minimum wage jobs. At campus recruitment, the child will not be discriminated on basis of being a foreign student.

If your child is highly skilled or a budding entrepreneur, the residency status will give him/her a jump start in starting his own start-up/business.

One of my young clients who had a brilliant business idea received VC funding in India and the USA. He then asked his parents to make an investment for him to receive USA residency so that he can start his business in the USA without any problems.

One of my Pakistani clients sent his son for higher studies in Canada. Within one year of study, my client realized that it was more economical and practical to obtain residency of Canada for the whole family by investing in Canadian government bonds.

  1. Quality of life:

HNIs and UMC in India now have sizable assets and disposable income. Hence foreign travel and pleasure trips abroad have become frequent occurrences. After having traveled abroad, they aspire to achieve the quality of life lived by people in developed countries. To this end, they can invest and live abroad and still continue to maintain their business operations and family ties in India. The new liberalized foreign exchange policy allows many HNIs and UMC to purchase their own real estate in countries they wish to live in or visit frequently.

3. Expansion of business:

Even though India is an economic powerhouse and Western countries are keen to develop trading ties with India, many Indian businessmen face hindrance in traveling abroad for business or pleasure.

These businessmen can now expand their business in the USA, Canada, Australia, U.K., and many other countries around the world through investment and ensure easy visa-free travel to several countries around the world. These businessmen can easily travel in and out of India to their preferred destinations for business expansion, collaborations, forming alliances or for pleasure. Many HNIs and UMC will be taking advantage of the new foreign remittance policy to make investments in businesses abroad, thus diversifying their business. They may bring new technology to India or make an investment in African and South American countries and export Indian technology to these countries. This is a win-win situation for Indian businessmen who wish to establish a global presence.

  1.  NRI status and its benefits:

 Investing in foreign countries can also facilitate obtaining NRI status and avail of tax-exempted benefits associated with NRI status. As we already know, many Indian celebrities, politicians, and sports personalities have obtained residencies of different jurisdictions around the world in the past for tax planning purposes. Today, this investment opportunity is easily accessible to Indian HNIs and the UMC who can obtain NRI status and receive its benefits.  This is also beneficial to the Indian economy as this generates more NRIs who in turn reinvest back in India, remit foreign currency to India, and may also bring new business ideas and opportunities.

  1. Visa-free travel around the world:

Exporters, businessmen, or investors from India and Asia can obtain residency of certain countries which do not require physical stay but provide residence permits/passports. With these documents, they can travel visa-free to more than 130 countries.

 6. Reunion with family living abroad:

Due to the strict visa regime of many countries, many family members are left alone in India. By making an investment abroad (a relative abroad can also make an investment for a relative in India), relatives can reunite in the country of their choice.

  1. Retiring abroad:

Many HNIs and their families can take advantage of retiring abroad by making investments outside of India, thus having the best of both worlds.

  1. Tax planning:

Investing abroad can give you the best solution for tax planning by taking advantage of NRI status, making investments through legitimate international trusts, and DATT signed by India with many countries around the world.

  1. Wealth Management & Portfolio diversification:

Stock market data of 2011-17 shows that whatever is happening to the US and UK economy, at the end of the year, both stock markets did much better than Indian and Chinese stock markets. Therefore, investing abroad in developed countries could be the best option for wealth management and portfolio diversification for savvy investors and HNIs who wish to explore the world’s stock markets.

  1. Political reasons:

In today’s world, unrest is occurring in all parts of the world. Having a second passport a great option to keep your family safe.

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