NRIs Should Allocate Portfolios Based on Future Financial Goals

US-based Non-Resident Indians (NRIs) often face a dilemma when it comes to investing their money. On one hand, there's familiarity with Indian companies and a long-term growth story that encourages them to invest back home. On the other hand, the US offers a large capital market with dollar-denominated returns and investment products that align with their financial lives.

However, experts say framing this as an 'India versus US' choice is the wrong approach. Instead, NRIs should ask themselves where they plan to spend their money in the future. Viram Shah, Founder & CEO of Vested Finance, notes that India's faster economic growth does not automatically translate into higher investment returns for someone whose wealth and expenses are measured in US dollars.

Shah cites long-term data from the NSE, which shows that the Nifty 500 delivered a compounded annual return of about 8.26% in US dollar terms over 30 years, while the S&P 500 returned about 8.33% annually. This means that India's economic growth is offset by the depreciation of the rupee against the US dollar over time.

Currency risk matters as much as investment returns when it comes to investing in India. Shah points out that even if an Indian investment generates attractive returns in rupees, a weakening rupee can reduce or eliminate those gains when converted back into dollars. He also notes that interest on NRE deposits is tax-free in India but taxable in the US under IRS rules.

Experts recommend that NRIs allocate their portfolio based on where they plan to live and spend their money in the future. Harsh Gupta, Founder of SIPYatrra, says that your portfolio should primarily reflect where your future financial responsibilities lie. This means considering where future expenses are likely to arise, such as buying property in India or funding children's education.