India had been an attractive investment destination for many years post liberalization of economy in 1990, and most of the times have remained true to the expectations as well. Though, the sentiments started turning negative by the end of second five year tenure of UPA, 2009 – 2014, due to multiple reasons including lack of reforms and policy impediments, and as you can see in figure 2, gap between the inflation and GDP growth had been very high in 2012-13 period.

This started to change with the democracy getting back on the strong governance formula and selecting a government with a clear mandate in a strong message to the polity of what the people really want.

 Result, economy started picking up the pieces and with definite measures slowly but surely coming India is once more an outperforming destination for investment.

The amount of investment a country attracts is also a factor in the growth story of that country. In case of our country more than 25 million strong NRI community forms a large investor base of foreign currency investment in the country. The rules of investments however, are much different for NRIs than those for resident individuals.

Our country has been among the world’s greatest beneficiaries of non-resident fund remittances to the country surpassing even the FDI flow.

Figure 1: BSE Sensex Performance

Figure 2: The Indian Growth Story 2007 - 2015

With such huge investments already flowing in, it becomes imperative for the investment advisors to understand the avenues available to NRI investors to safely invest their money and also what their needs could be.

Factors to Account For While Investing
For a resident individual investing in domestic market is simply a decision based on domestic factors like growth prospects and taxability, for an NRI on the other hand more than that should be accounted for:

• NRI status
• Investment Avenue
• Taxability
• Exchange Rate Factors
• Repatriation Needs

NRI Status
Knowing your NRI status is important, because of the different investment choices available to you as an NRI. While many times NRIs stay in a foreign country for many years before striking any change in their status, but if this status is supposed to change quickly, as in the case of a work visa, which may require you to stay on foreign soil at infrequent intervals.

Following conditions define your NRI status:

Figure 3: Determining Your Residential Status

INVESTMENT AVENUES FOR NRIS
NRIs may have multiple investment options to gain from Indian growth story in the way of India focused mutual funds, but many of these investments are regulated by the home country rules, and can only take a limited number of nonresident applications.

Direct investment in Indian instruments and markets are therefore, a preferable option for NRIs. For such investments RBI guidelines provide for two kinds of investment avenues for Nonresident Indians:

1. Investments with repatriation option
2. Investments without repatriation option

Investment on Repatriation Basis
Allowable investments with repatriation basis provide the NRIs avenues to invest earn and remit the earnings to their respective resident countries. List of the kind of securities is as follows:

• Government dated securities / Treasury bills
• Units of mutual funds operating in India
• Bonds issued by a public sector undertaking (PSU) in India
• Non-convertible debentures of a company incorporated in India
• Perpetual debt instruments and debt capital instruments issued by banks in India
• Shares in Public Sector Enterprises being dis-invested by the Government of India
• Shares and convertible debentures of Indian companies under the FDI scheme (including automatic route & FIPB)
• Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme.

There is no limit on the amount of money an NRI can put in these instruments, and repatriation means money invested in these instruments can be remitted to the foreign country in which the person is residing, thus making such investments attractive choice from the liquidity point of view.

Investment on Non-repatriation Basis
Money invested in these investment instruments cannot be taken back, and thus may prove to be a one shot investment and can be used only for investments in other Indian instruments. Such investments are:

• Government dated securities / Treasury bills
• Units of domestic mutual funds
• Units of Money Market Mutual Funds
• National Plan/Savings Certificates
• Non-convertible debentures of a company incorporated in India
• Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme,
• Exchange traded derivative contracts approved by the SEBI, from time to time, out of INR funds held in India on non-repatriable basis.

NRIs are not permitted to invest in small savings schemes and Provident Funds. Therefore, if one had been a resident and have invested in any such investments, after becoming NRI such investments once matured cannot be continued or repatriated.

Other Investment Avenues
Other than the instruments listed above, NRIs can also invest in immovable properties in India. By immovable property we generally mean the real estate sector. This sector has been one of the most attractive destinations for NRIs for long, mainly due to good value of returns and low volatility in prices. More than that, NRIs are allowed to repatriate the sale proceeds as well, unlike the debt instruments listed above.

TAXABILITY OF INVESTMENTS
Taxability of invested amounts is another factor which NRIs should account for while investing money. Tax issues for the top three investment choices can be explained as given below:

Debt Instruments
Investment in Debt can be made through Non Resident Ordinary (NRO), Non Resident External (NRE) accounts and Foreign Currency Non-Resident (FCNR) deposits. Taxability under these deposits and other eligible debt instruments is as follows:

 Figure 4: Taxability of Debt Investment by NRIs

Equity Instruments
Equity investments can be made in three ways by NRIs, either through FDI, through Equity Funds or through direct broking account for equity markets. These investments are routed through Portfolio Investment Schemes or Mutual Funds. Such investments will be taxed as following:

Figure 5: Taxability of Equity Investments by NRIs

Real Estate Investments
NRIs can invest without restrictions in residential, commercial or other properties with the following exceptions:

• Agricultural Land
• Farm Houses &
• Plantations

Although, investing in residential or commercial properties in the country is easy remittances and repatriation does require some attention. Some of the rules are simply explained below:

• Property Purchased by FCNR Funds: The repatriation cannot exceed the amount paid through this account.
• Property Purchased by NRE A/C Funds: The repatriation cannot exceed the foreign exchange equivalent of the amount in the NRE account.
• Property Purchased using NRO A/C Funds: The sale proceeds must be credited to your NRO account and you can repatriate to the extent of USD 1 million only.

Thus, participating in the great Indian growth story is going to be a lucrative option for NRI investors but unlike resident individuals, there are more rules and regulations to follow for non-residents. Also while investing in a foreign market exchange rates can play a crucial role in maximizing or minimizing the return from country’s growth. Looking at the current scenario Dollar is still trailing at above Rs. 60 levels which in itself are the one of the lowest levels in past three years. Therefore, this can be the best time to enter the market and benefit from both Indian economy and currency Exchange rate.

The following is an excerpt from Warren Buffett's latest annual letter to shareholders where he shares his thoughts on investing by narrating his experiences related to property purchases made by him in 1986 & 1993:

This tale begins in Nebraska. From 1973 to 1981, the Midwest experienced an explosion in farm prices, caused by a widespread belief that runaway inflation was coming and fueled by the lending policies of small rural banks. Then the bubble burst, bringing price declines of 50% or more that devastated both leveraged farmers and their lenders. Five times as many Iowa and Nebraska banks failed in that bubble’s aftermath than in our recent Great Recession. In 1986, I purchased a 400-acre farm, located 50 miles north of Omaha, from the FDIC. It cost me $280,000, considerably less than what a failed bank had lent against the farm a few years earlier. I knew nothing about operating a farm. But I have a son who loves farming and I learned from him both how many bushels of corn and soybeans the farm would produce and what the operating expenses would be. From these estimates, I calculated the normalized return from the farm to then be about 10%. I also thought it was likely that productivity would improve over time and that crop prices would move higher as well. Both expectations proved out.

I needed no unusual knowledge or intelligence to conclude that the investment had no downside and potentially had substantial upside. There would, of course, be the occasional bad crop and prices would sometimes disappoint. But so what? There would be some unusually good years as well, and I would never be under any pressure to sell the property. Now, 28 years later, the farm has tripled its earnings and is worth five times or more what I paid. I still know nothing about farming and recently made just my second visit to the farm.

In 1993, I made another small investment. Larry Silverstein, Salomon’s landlord when I was the company’s CEO, told me about a New York retail property adjacent to NYU that the Resolution Trust Corp. was selling. Again, a bubble had popped – this one involving commercial real estate – and the RTC had been created to dispose of the assets of failed savings institutions whose optimistic lending practices had fueled the folly.

Here, too, the analysis was simple. As had been the case with the farm, the unleveraged current yield from the property was about 10%. But the property had been undermanaged by the RTC, and its income would increase when several vacant stores were leased. Even more important, the largest tenant – who occupied around 20% of the project’s space – was paying rent of about $5 per foot, whereas other tenants averaged $70. The expiration of this bargain lease in nine years was certain to provide a major boost to earnings. The property’s location was also superb: NYU wasn’t going anywhere.

I joined a small group, including Larry and my friend Fred Rose, that purchased the parcel. Fred was an experienced, high-grade real estate investor who, with his family, would manage the property. And manage it they did. As old leases expired, earnings tripled.

Annual distributions now exceed 35% of our original equity investment. Moreover, our original mortgage was refinanced in 1996 and again in 1999, moves that allowed several special distributions totaling more than 150% of what we had invested. I’ve yet to view the property. Income from both the farm and the NYU real estate will probably increase in the decades to come. Though the gains won’t be dramatic, the two investments will be solid and satisfactory holdings for my lifetime and, subsequently, for my children and grandchildren. I tell these tales to illustrate certain fundamentals of investing:

• You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.”
• Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake.
• If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it.
• With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.
• Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth.”)
• My two purchases were made in 1986 and 1993. What the economy, interest rates, or the stock market might do in the years immediately following – 1987 and 1994 – was of no importance to me in making those investments. I can’t remember what the headlines or pundits were saying at the time. Whatever the chatter, corn would keep growing in Nebraska and students would flock to NYU.

There is one major difference between my two small investments and an investment in stocks. Stocks provide you minute-to-minute valuations for your holdings whereas I have yet to see a quotation for either my farm or the New York real estate.”

KEY TAKEAWAYS:
Equity investors, on the whole, buy equities with a longer term perspective but tend to get influenced by the following factors resulting in them behaving irrationally:

• Irrational behavior of other equity investors in the market
• Vast amount of information available about the markets, economy, interest rates, price movement of stocks etc.
• Market 'gyan' shared by stock experts in leading newspapers and TV channels. The implied message being delivered to so-called rational investors is “don't just sit there, do something.”

A lot of times, just remaining passive and not doing something is the most sensible and beneficial (in the long run) course of action.

Warren Buffett's latest newsletter is available on the Berkshire Hathaway's website at the following link:
http://www.berkshirehathaway.com/letters/letters.html

Wealth creation is not easy. But neither it is difficult for wise and disciplined investors. One product that can really help investors in wealth creation is a mutual fund Systematic Investment Plan (SIP).

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