ETMarkets NRI Talk| Rs 1 crore, 5-7 years: How NRIs should allocate across Indian equities, bonds, gold and alternatives, says Rohit Sarin

For NRIs looking to invest Rs 1 crore in India over a 5-7 year horizon, deciding how much to allocate to equities, fixed income, gold and alternatives can be challenging, particularly when existing India exposure and global assets also need to be considered.

In an interaction with Kshitij Anand of ETMarkets, Rohit Sarin, Co-Founder, Client Associates, said NRIs should take a holistic view of their global portfolio, India exposure, liquidity needs, risk appetite and tax situation before investing.

While he favours a meaningful allocation to equities, Sarin suggested an illustrative framework of 55-65% in equities, 15-20% in fixed income, 5-10% in gold and 5-10% in alternatives, with the balance in real assets or other diversifiers. The following are the edited excerpts from the chat:

Q) India continues to attract significant interest from NRIs. What are the biggest hurdles NRIs still face when trying to invest in Indian equities and mutual funds, despite the process becoming increasingly digital?

A) The biggest hurdle is no longer access to India; it is navigating the complexity around access. The digital journey has improved considerably, but NRIs still have to deal with the right account structure, KYC, FEMA requirements, repatriation rules, taxation and documentation across different investments.

For a serious NRI investor, therefore, the challenge is less about being able to buy an Indian equity or mutual fund and more about creating a seamless framework for investing, monitoring and eventually repatriating wealth. This is particularly important for families with significant India exposure, where investments need to be considered as part of the overall global portfolio rather than in isolation.

Q) With the rupee hitting Rs 96 per USD, has it impacted NRI investments into India? What is the general mood?

A) INR depreciation against the USD has been a dampener for NRIs investment into India since that eats into their real returns in USD or the currency of their country of residence. The only solution to that is for an NRI investor to approach their India allocation as a strategic allocation to participate in India’s long term growth story.

Besides that additional benefit could be that India allocation would help to diversify their global portfolio on account of poor correlation of Indian markets with US and other emerging markets.

The minimum time horizon which NRIs need to look for India allocation is 10 years to achieve the dual objectives of growth and diversification.

However, NRI investors perception of India remains anchored to the times when they left India for the greener pastures and therefore they come late to the party as a tactical allocation when markets in India have already run up and therefore either the correction in Indian markets of the depreciation of the INR hits them too soon to have a good experience.

Q) For an NRI looking to invest in Indian stocks, how should one decide between an NRE and NRO account? What are the key differences from an investment and repatriation perspective?

A) The choice should primarily be driven by the source of funds and the investor's repatriation requirements.

Broadly, an NRE account is designed for foreign earnings and offers greater flexibility for repatriation, while an NRO account is typically used for managing income earned in India and has more restrictions around repatriation.

For an NRI investing in Indian securities, the account structure should therefore be decided upfront rather than after the investment has been made. The distinction becomes particularly important when the objective is to eventually move investment proceeds back overseas.

The RBI framework permits NRIs to invest in Indian securities through prescribed routes, with the repatriation treatment depending on the investment and account structure.

For larger portfolios, we would recommend taking a holistic view of the account structure, FEMA requirements, taxation and eventual repatriation before deploying capital.

Q) Are NRIs under-allocated to Indian equities compared with their overall exposure to India? Which asset classes should they consider beyond direct stocks and mutual funds?

A) There is certainly a case for NRIs to look at their India exposure more holistically. Many NRIs already have significant economic exposure to India through family businesses, real estate, employment or other assets. Their financial portfolio should therefore complement, rather than simply replicate, that exposure.

From a financial asset perspective, given the choice of instruments and asset classes available globally for comparable returns in USD the best asset class for NRIs to look at would Indian equities.

Q) Tax is often one of the biggest concerns for NRIs. How should they think about the tax treatment of equity, mutual funds, bonds, FDs and alternative investments in India?

A) Tax should be considered at the portfolio-construction stage, not after an investment has already been made.

The treatment can differ significantly depending on the asset, holding period, nature of income, account structure and the NRI's country of tax residence. Double Taxation Avoidance Agreement provisions can also become relevant.

Therefore, there is no single "NRI tax rate" that can be applied across equities, mutual funds, bonds, FDs and alternatives. Each asset class needs to be evaluated on its post-tax return, liquidity and repatriation characteristics.

Q) Are you seeing greater interest from NRIs in newer products such as AIFs, PMS, private credit, REITs and InvITs? Which could see the biggest growth in NRI portfolios?

A) We see increasing interest in moving beyond traditional listed equities and mutual funds, particularly among sophisticated NRI investors who are looking for diversification and differentiated sources of return.

AIFs and private credit can be particularly relevant for investors with the appropriate risk appetite and investment horizon, while REITs and InvITs can provide access to real assets without requiring direct ownership.

However, we would not expect one product category to become the universal answer. The growth opportunity will come from greater portfolio diversification, with alternatives being used selectively alongside a strong core allocation.

Q) If an NRI has Rs 1 crore of surplus money to invest in India with a 5–7-year horizon, how would you divide it across equities, fixed income, gold, real estate and alternatives?

A) We would be cautious about giving a single allocation without understanding the individual's existing global portfolio, India exposure, liquidity requirements, risk tolerance and tax situation.

However, for an investor with a 5–7 year horizon and a moderate-to-high risk appetite, our current stance would support a meaningful allocation towards equities, complemented by diversifiers.

As an illustrative framework rather than a personalised recommendation, one could think about approximately 55–65% in equities, 15–20% in fixed income, 5–10% in gold, 5–10% in alternatives and the balance in real assets or other diversifiers.

The important point is that the allocation should be considered alongside the NRI's existing exposure to Indian business, real estate and global assets.

This is particularly relevant today because CA remains Overweight on equities but Neutral on fixed income.

Q) Could we see more India-focused global funds or India-domiciled products in GIFT City designed specifically for overseas Indians?

A) Yes, we believe this is an area with significant potential.

The opportunity is to create investment structures that give overseas Indians efficient access to India while reducing some of the administrative and operational complexity associated with investing directly through multiple domestic accounts.

GIFT IFSC is already developing into a broader international investment platform, with products spanning equities, ETFs, debt, AIFs and mutual funds. IFSCA specifically highlights NRI access to Indian and global securities and fund structures through the IFSC.

As the ecosystem matures, we could see more products designed around the specific needs of global Indians, particularly those who want India exposure within a globally integrated portfolio structure.

Q) What new financial product is currently missing from the Indian market that could significantly improve the investment experience for NRIs?

A) I would actually argue that the bigger gap is not necessarily another investment product.

It is a better investment architecture for the global Indian.

An NRI often has assets, liabilities, businesses and family interests spread across India and one or more overseas jurisdictions. What is still missing is a truly integrated solution that can bring together global asset allocation, Indian investments, taxation, currency exposure, liquidity and succession within one coherent framework.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)