By Uma Shashikant.
Returning middle-class NRIs, especially the ones who have worked in the Middle East, are quite anxious about their finances. Typically their India plans are woven around their children’s higher education and many of those returning are in their mid-40s. They are too young to retire, but at the same time they are unsure about a second career.
They have accumulated a lot of assets, but are not sure how to use them optimally. A reader asked me about planning ahead. He wants to return 10 -12 years from now, and wants to be well prepared for it.
First, do not overdo real estate investments. High income and high savings typically translate into large ticket assets such as property in India. Assets built by NRIs who plan to return to India should serve one primary purpose—generate adequate income to cover household expenses while one searches for a new job or profession. I know of a smart NRI who buys small spaces and rents them to banks for ATMs, generating a steady income. I also know of the palatial pink mansions built on large plots that are useless to the investor. If you must buy property, take care to choose those that have good rental value. Don’t go over the top doing it up either as a 10-year old flat may not match your lifestyle when you return.
Second, gold’s glitter has limited value. It is not uncommon for Indian families in the Middle East to stock up on gold and jewellery. Many returning NRIs are guilty of selling off the gold at steep costs guised by jewellers as making charges and damages, or pledging them to meet expenses and then struggling to recover the jewels due to lack of cash flow. Selling off accumulated gold is a tough emotional decision too. I have also known of NRIs who are left struggling with their careers and incomes, while the wife unexpectedly refuses to part with, or makes off with, the gold claiming it as hers. Some investment in gold is fine, but don’t buy gold every time you have a surplus to invest.
Third, starting a new business in India has become tougher now, due to the entry of a large number of very young people who want to be entrepreneurs. Technology is being leveraged in ways not known before, and several small tasks are accomplished by service providers who reach customers at low costs. The lack of familiarity with the local markets is turning out to be a disadvantage for NRIs, given the speed of change in India. Choose carefully after considering your own skills and motivations, and be willing to work with a detailed business plan. A friend built a business that converted his NRI friends’ flats into managed serviced apartments. He worked on it for over five years, before he actually returned. Be prepared to invest capital ahead of your return, to seed and develop your business idea.
Fourth, do not mix personal and professional relationships. Many returning NRIs begin business ventures in partnership with relatives and friends, purely based on their availability and are disappointed at the outcomes. Depending on what you plan your second career to be, make sure you have connected with the right people, met them on your trips to India, and even worked with them on smaller projects before returning. In this age of social media, it is easier to find people with similar interests and to test projects, ideas and plans before taking the plunge. Make the time to invest in such networks and be sure you have the right partners in whatever you choose to do.
Fifth, make sure that your financial assets are large enough to fund your new venture as well as your early retirement. Financial assets such as equity shares, bonds, deposits and mutual funds are easy to accumulate, manage and use as desired. They can be liquidated easily when needed, at low costs. Regular surpluses in the earning years should be devoted to building the corpus that you will bank upon, and it is a good idea to be aggressive about building and growing it during the phase when the income is more than adequate. Treat the corpus with great care on return, and do not entertain requests from hangers-on for funding their own needs of setting up a business or buying property.
Sixth, earmark the uses for your assets as you build them. If a specific sum is needed for the children’s education, save and invest for that goal and ensure that if is fully funded. If you plan to set up a business and want to invest capital into it, make sure you have a business plan and know the amount of initial capital and working capital you will need. Do not compromise on the routine income needed to sustain the household by investing a disproportionate amount of money into a business. If you plan to sell off old property to buy a new one, or plan to renovate what you already hold, allocate a budget for the same and ensure it does not consume too much of your corpus. List all big ticket demands on your corpus, and test your corpus for adequacy before returning.
If you have 10-12 years to return to India, your focus should be on ensuring that your wealth is primarily made up of financial assets (60-70%), some inevitable property (20-30%) and some unavoidable gold (10-20%). You should ensure that your assets grow in value while you are there, and offer the potential for income when you return. Ideally, your assets should not require costs, taxes, expenses and upkeep when you return, but be readily available to use as required.
You should prepare for augmenting the income that your investments will offer, with a second career. The groundwork for the second career or business should be made even as you are preparing to return, so the transition is smoother. You will operate from a position of need, panic or urgency, depending on your mental make-up, if you begin your groundwork after returning. Do not underestimate the toll the transition will take, on your professional and personal life and buffer your wealth carefully to serve as your pillar of support. Your wealth should be available to use, as needed, and not a mere number that provides social acceptance.
(The author is Chairperson, Centre for Investment Education and Learning)
Returning middle-class NRIs, especially the ones who have worked in the Middle East, are quite anxious about their finances. Typically their India plans are woven around their children’s higher education and many of those returning are in their mid-40s. They are too young to retire, but at the same time they are unsure about a second career.
They have accumulated a lot of assets, but are not sure how to use them optimally. A reader asked me about planning ahead. He wants to return 10 -12 years from now, and wants to be well prepared for it.
First, do not overdo real estate investments. High income and high savings typically translate into large ticket assets such as property in India. Assets built by NRIs who plan to return to India should serve one primary purpose—generate adequate income to cover household expenses while one searches for a new job or profession. I know of a smart NRI who buys small spaces and rents them to banks for ATMs, generating a steady income. I also know of the palatial pink mansions built on large plots that are useless to the investor. If you must buy property, take care to choose those that have good rental value. Don’t go over the top doing it up either as a 10-year old flat may not match your lifestyle when you return.
Second, gold’s glitter has limited value. It is not uncommon for Indian families in the Middle East to stock up on gold and jewellery. Many returning NRIs are guilty of selling off the gold at steep costs guised by jewellers as making charges and damages, or pledging them to meet expenses and then struggling to recover the jewels due to lack of cash flow. Selling off accumulated gold is a tough emotional decision too. I have also known of NRIs who are left struggling with their careers and incomes, while the wife unexpectedly refuses to part with, or makes off with, the gold claiming it as hers. Some investment in gold is fine, but don’t buy gold every time you have a surplus to invest.
Third, starting a new business in India has become tougher now, due to the entry of a large number of very young people who want to be entrepreneurs. Technology is being leveraged in ways not known before, and several small tasks are accomplished by service providers who reach customers at low costs. The lack of familiarity with the local markets is turning out to be a disadvantage for NRIs, given the speed of change in India. Choose carefully after considering your own skills and motivations, and be willing to work with a detailed business plan. A friend built a business that converted his NRI friends’ flats into managed serviced apartments. He worked on it for over five years, before he actually returned. Be prepared to invest capital ahead of your return, to seed and develop your business idea.
Fourth, do not mix personal and professional relationships. Many returning NRIs begin business ventures in partnership with relatives and friends, purely based on their availability and are disappointed at the outcomes. Depending on what you plan your second career to be, make sure you have connected with the right people, met them on your trips to India, and even worked with them on smaller projects before returning. In this age of social media, it is easier to find people with similar interests and to test projects, ideas and plans before taking the plunge. Make the time to invest in such networks and be sure you have the right partners in whatever you choose to do.
Fifth, make sure that your financial assets are large enough to fund your new venture as well as your early retirement. Financial assets such as equity shares, bonds, deposits and mutual funds are easy to accumulate, manage and use as desired. They can be liquidated easily when needed, at low costs. Regular surpluses in the earning years should be devoted to building the corpus that you will bank upon, and it is a good idea to be aggressive about building and growing it during the phase when the income is more than adequate. Treat the corpus with great care on return, and do not entertain requests from hangers-on for funding their own needs of setting up a business or buying property.
Sixth, earmark the uses for your assets as you build them. If a specific sum is needed for the children’s education, save and invest for that goal and ensure that if is fully funded. If you plan to set up a business and want to invest capital into it, make sure you have a business plan and know the amount of initial capital and working capital you will need. Do not compromise on the routine income needed to sustain the household by investing a disproportionate amount of money into a business. If you plan to sell off old property to buy a new one, or plan to renovate what you already hold, allocate a budget for the same and ensure it does not consume too much of your corpus. List all big ticket demands on your corpus, and test your corpus for adequacy before returning.
If you have 10-12 years to return to India, your focus should be on ensuring that your wealth is primarily made up of financial assets (60-70%), some inevitable property (20-30%) and some unavoidable gold (10-20%). You should ensure that your assets grow in value while you are there, and offer the potential for income when you return. Ideally, your assets should not require costs, taxes, expenses and upkeep when you return, but be readily available to use as required.
You should prepare for augmenting the income that your investments will offer, with a second career. The groundwork for the second career or business should be made even as you are preparing to return, so the transition is smoother. You will operate from a position of need, panic or urgency, depending on your mental make-up, if you begin your groundwork after returning. Do not underestimate the toll the transition will take, on your professional and personal life and buffer your wealth carefully to serve as your pillar of support. Your wealth should be available to use, as needed, and not a mere number that provides social acceptance.
(The author is Chairperson, Centre for Investment Education and Learning)
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