Lot of our clients are NRIs – so this question is a FAQ for us – “Is it the right time to send money to India?” Clients who have spent some time with us know the answer but they still probe ahead like – “I would like your outlook on the Indian Rupee vs Dollar in the next few months. Is Rupee going to depreciate further? How far do you think it will fall? No one can predict due to the numerous factors but I want your feedback.”
New clients have more expectations “Some quick help needed. I need to transfer some funds from UK to India. Can you suggest when should I initiate that transfer? Is it right time now or should I wait for a while.”
Right time to send money to India
With domestic interest rates peaking and showing a sign of reversal, NRIs have this question in their minds- should they be remitting money to India for investment purpose or not, at this time?
A few figures just to tell what kind of money we are talking about:
- The remittance to India is increasing constantly. Indian bourses did not do well in 2008 to 2011 but the remittances were constant.
- Money remitted to India in 2011 was $57 billion where as China received $56 billion. India has the largest 12.5% share of the total worlds remittances followed by China (11.6%) and Mexico (5%).
- These remittances exclude the NRI bank deposits hence this is the money that goes into local markets for consumption and benefits the economy. For example, the Money Transfer industry in India itself is growing at an average of 20%.
Why do NRI transfer money to India?
- NRI remit money to their families for sustenance in India. Inflation has been on upside here so we can see NRI will send more money for consumption.
- They send money to invest in India. Major investment goes to Bank deposits and property. These are sometime done due to emotional reasons also as they feel their roots are here and there is chance that they may return in future to avail benefits arising out of these investments.
Note: Effective December 2011, the RBI has deregulated the interest rate that was payable on NRE (Non Resident External) accounts. Hence banks can interest rate of their choice. Following this liberty the rates on these deposits have gone up from a level of 3.7%-3.8% to a level of 7% to 10% for different maturity deposits. Hence these NRE accounts have become more lucrative as NRIs can catch the peak deposit rates as FD rates in India will go down in future.
Now the million dollar question – Is it the right time to send money to India?
Benefits of transferring money to India Now:
- A PE multiple of 15X for March 12 and a GDP of 7% to 7.5% in more than enough to attract money and capital markets will reflect the solidity. NRIs from developed countries are already struggling with the returns that their markets are giving. Also they will take time to come out of the recent turbulence. They can look for good tax free returns from India.
- RBI’s deregulation on NRE deposits is providing a good opportunity to NRIs from country that have lower rate of deposits. Since the principal and the earnings are repatriable and convertible this is a good bet for deposits ranging from 1 year to 5 years.Develop countries still have deposit rates in range of 1% to 5% – which are very low in comparison to Indian deposit rates for NRIs.
Tip: RBI has allowed that now NRE/FCNR (Foreign Currency Non Resident) accounts can be hold with a close relative in India on former and survivor basis. This means your relative can also operate the account as Power of Attorney. This will smoothen the banking process and funds can be managed even in case the NRI himself is not present for transactions.
Caveat of transferring money to India Now:
- The biggest fall back is the exchange rate risk. Rupee as a currency has shown it weakness in Nov-December 11 periods. Expert say it will take time before it goes into stable range. The rupee depreciation will be beneficial when you are getting funds in India as you will get more rupee per unit the foreign currency and vice versa. Check out the recent volatility as Depositor has to face this during the time he is invested.
Dollar Vs Rupee Chart
Euro vs Rupee Chart
- Although the returns on FCNR and NRE are tax free in India but they are taxable as per the structure of the country where NRI lives. This can be as high as 55% for some countries and this will bring the actual returns lower. For this please consult the tax advisor before investing in India.
- The rules and caps over investments in foreign currency keep on changing on frequent basis. These rules are covered in various acts like RBI Regulations, FEMA and different banking regulation acts and guidelines. NRI needs to be proactive and informed in this matter.
Our take at present – on sending money to India for Investments:
At present times it makes sense that NRIs should remit more money for investment purpose in India. The overall returns from India looks promising as Indian Growth Story will continue going forward and will be an exception to many countries. Also rupee will appreciate against dollar in long term, so during maturity you will have more number of dollars to take home. But again each country is different in terms of regulations and tax implications. Do no invest without pondering over these and taking expert’s advice.
Disclaimer: The data related to capital markets or bank rates as mentioned in article in no way should be considered as advice for investing in Debt or Equity securities, directly or indirectly. Readers are requested to consult their Financial Advisor for any investment decision they take.
Feel free to ask any question or share your experience, add it in comment section.