NRIs should buy term insurance cover in the country of residence

This article was first published on livemint.

As an NRI, should I invest in assured long-term saving plans with life cover or mutual funds?

Let me come to one of the basic tenets of personal finance—you should not mix investment and insurance. Insurance-cum-investment products like unit-linked insurance plans (Ulips) and endowment plans are not good for either insurance or investment. They come with high expense ratios and the amount which gets invested is less than what you intend to. For a life cover, I would suggest you buy a term life insurance in the country of your residence. If you are looking for investment opportunities, then you should consider mutual funds.

If you are looking for conservative investments, you could consider debt funds in India. Indian debt funds have given about 8% returns in the past. Also, the rupee has been stable against the euro. If you are investing for the long-term and absorb some volatility in short-term returns, equity or hybrid mutual funds are a good option. In the last 20 years, good equity mutual funds in India have given over 20% annualized returns. That combined with the relative stability of rupee versus the euro, you should be able to grow your corpus well with mutual funds based in India.

What mutual funds are available to invest in for a US-based NRI online?

FATCA (Foreign Account Tax Compliance Act) regulations require financial institutions dealing with US entities to follow strict compliance and reporting standards. As a result, many mutual funds companies have either closed their funds for the US- and Canada-based NRIs or imposed severe restrictions. Meanwhile, there are some good fund houses which have kept their doors open. Mutual fund companies which allow US-based NRIs to invest without restrictions are L&T Mutual Fund, UTI Mutual Fund, Sundaram Mutual Fund, and BNP Paribas Mutual Fund. These funds allow NRIs to invest through some online platforms and their own websites.

I have non-resident (external) or NRE and non-resident (ordinary) or NRO accounts in a bank in India but they do not allow demat accounts for NRI customers. How can an I invest in mutual funds in India?

You do not need a demat account to invest in mutual funds in India. You could instead use the convenience of an online platform to invest in mutual funds. What you need are the PAN card and a rupee-designated NRE/NRO account. You would also need to complete your mutual fund KYC (know your client) before you could invest in mutual funds. Some of the online platforms allow you to complete the KYC as an NRI. For the detailed process of completing mutual fund KYC as an NRI, refer here.

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