By Stan D'Souza, Bengaluru
Stan D’Souza is a finance professional who previously held senior positions in a bank and multinational companies of repute. "I used to manage company finances well, but when it comes to our personal financial management I think we all tend to be a bit relaxed and procrastinate due to pressure of work. I wish I had done better planning before coming back for good which would have resulted into better return on investments," he says. Presently he is doing consultancy work in the risk management and compliance related field, while helping his wife to run her wedding gown business (Bridal Brigade) which, he says, is more colourful than the dryness of finance field.
Feb 22: It is that moment in life when you have decided to come back and settle in India after spending considerable years abroad. You are excited, nervous and unsure of what is in store for you.
After living for over twenty years in Dubai, when I finally came back to settle in Bangalore, my initial experience was far from pleasant. From an orderly life with wide roads, controlled traffic, cleanliness, and rule of law, I was suddenly feeling out of sync. Of course coming to India on holidays cannot be compared with settling for good, which poses different challenges. As months pass by, being ‘a born Indian’ you learn to live in this organized chaos again, slowly but steadily. Inevitably you transform to be a part of the system and in some sense start enjoying it.
I would like to share some experiences and ideas to enable others to be better prepared for this transition, both from settling issues and financial wellbeing perspective. It is said ‘failing to plan is planning to fail’. This is true in every aspect of life. Many a time the decision to come back is thrust upon you so prematurely that you will feeltime is your biggest enemy.
Ease of settling:
If you think having a couple of crores of rupees will help you live here ‘happily ever after’ with the same life style, you are in for a surprise. The rents are not cheap, continuously rising, and so is the cost of basic necessities. The prices of groceries and household items are similar to that of Dubai multiplied by the exchange rate; sometimes much more. If you have your own house, you would be better off. However if you do not have one, buying a new one would deflate a big part of your savings.
We take electricity and water issues, for granted in the Gulf and even in the western countries. Here it is a daily struggle. You need to have a power backup with UPS. Corporation water is highly inadequate especially in new areas. You end up paying lots to buy tanker water, the price of which varies depending upon the season.
Traffic in Bangalore is a nightmare and time consuming. At times one is too close to comfort with the next person in the traffic. But you will get used to it. The good news is one cannot drive fast. There is some unwritten order in this chaos and people respect it. Having your own car is ideal; a smaller car is better if you intend to drive regularly in the traffic and in small lanes.
With everyone’s sons and daughters aspiring for higher studies, skilled labour is a scare commodity. Maintenance work is expensive and there is no time commitment. You are at their mercy and in majority of the cases the quality of the workmanship is poor. It is advisable, that you bring quality home tools as the workers expect you to have them.But over time you will develop contacts and a network of fairly good workers. It would be beneficial to bring your essential household furniture from abroad (a full container would work cheaper with less damage to the items). This proved to be cost effective for me and the quality of the furniture was superior to what was readily available in the local market.
The best part of Bangalore is the weather - it is very pleasant for most part of the year (sans some dust at main roads).I enjoy my fish here (better than Dubai!). I have found a good fish vendor in Johnson market, one Aslam Bhai, gives me very good fish which he gets from Mangalore. (Not that Aslam Bhai… Dubai ka chashma Cheen ki chaddiwala). You get fresh pork unlike frozen one in Dubai. Fresh seasonal Fruits, vegetables are available in plenty. You make friends here easily.
Mind your finances:
The issues that I would like to discuss here are relevant not just for those who return for good, but for people who live abroad and dream that life goes on and on. Advance planning is equally important here too if you want to live happily after returning to India. Here are a couple of points I would like to draw your attention to. I wish I too had thought in these lines before.
1. Taxation: As a NRI if your India origin taxable income is more than Rs.2.5 lacs (Indian incomes like rents received, interest on NRO accounts etc.) you need to file your tax return. If you stay in India beyond 180 days you would be considered ‘resident’ for Income tax purpose. All your interest on NRI Bank deposits is taxable from day one of your becoming a resident. FCNR can be converted into RFC Accounts and can be held for two years without tax. Thereafter it becomes resident income and taxable.You need to declare your foreign assets in your tax return. Now with mandatory PAN card, one cannot escape and there are penal provisions for not filing tax returns.Hence tax planning is something you need to consider before you come for good.
2. NRIs who do not plan to return soon: If you have sizeable NRO deposits for which TDS is deducted and you file returns, you can convert them to NRE deposit and not pay any tax or have TDS deducted. I am sure many are not aware of this provision. RBI permits up to USD 1 million to be transferred into NRE deposits from NRO funds. What you need to prove is that the NRO amount was from foreign remittances. The process is simple. You need to submit a certificate in this regard from a Chartered Accountant to your Bank and the Banks would do the rest. The interest rates in India are expected to come down continuously going forward and hence, this option could be used to avail higher NRE interest rate for a longer maturity. Please do the cost benefit analysis taking into consideration tax savings also.
3. Financial Planning is something very important which should not be postponed. It is like a budget with a long term view where your life’s goals are be matched to your financial needs at different stages of your life. Whatever investment you would do should be as per this plan, rather than momentary decisions based on advices from sellers of investments with vested interests. Many fail to do this either because of paucity of time, lack of knowledge and end up in miserable investments. There are lots of good financial Advisors and you need to test them for their ideas and choose one. On my return I tried couple of RMs from Banks and some independent financial advisors. My experience is an independent adviser of repute would be good as his/her proposition includes wider net of investment options than Bankers who are focused on products related to their Banks only. The former are also cost effective. I am lucky that I met someone with over 10 years’ experience, a person of Mangalorean origin, having five offices in three cities, who is not pushy and he gave me lot of options. Once I did my financial plan, I started initially with small investments through his investment wing. Now over a year I am really happy.
4. Investing: Cardinal rule in any prudent investing is ‘do not keep all your eggs in one basket’. Hence diversify. Keep adequate insurance, both life and medical.
Bank deposits are what I think most NRIs invest in. But once you are back, Bank fixed deposits (FD) are not tax efficient. There is no inflation related tax benefits allowed for Bank deposits. There are other avenues like mutual funds (MF) both equity and debt as underlying assets. For equity mutual funds, after one year there is no tax on capital gains. For debt mutual funds, you get indexation benefit (inflation deduction) on capital gains beyond 3 years. Thus very much tax efficient compared to Bank FD. Now debt mutual funds are safer andyield returns higher than Bank FD net of tax. Equity mutual funds are more volatile based on the Stock market. The best way to invest in equity MFs is through SIP route. Here every month or every week depending on how comfortable you are, a certain amount is systematically invested in these mutual funds. This will average out the risk. Indian economy is poised to grow very well in years to come and equity investments would yield better returns on the long run with no capital gains tax.
5. Tax free bonds: Once you are back and if you are lucky, sometimes you get opportunities to invest in tax free bonds, which are 15 years of maturity and with 8 to 9% tax free interest. This is as good as getting 11.5% on Bank deposits. You could also invest up to Rs.1.5 lakhs per year in Public provident Fund. This is again tax free, but need to be held for a longer period. The Tax free bonds are very safe with good ratings and are tradable on the Stock exchange.
6. Real estate is something many NRIs are interested in. This is definitely a good investment. Compared to flats, holding land will yield more returns in the long run, but it is associated with lot of management issues especially in Bangalore with many unpleasant incidents. You definitely need somebody locally to look after your investments.
7. PMS: One thing I would recommend would be to have a PMS account (Portfolio Management Account) with wealth managers of repute. Here your wealth managerhandles your investment on your behalf with your Power of Attorney. Of course the investments are discussed with you as per plan and you will have a separate Bank and a Demat account in your name. There will be online visibility of the investments made on your behalf. Moreover, there are stringent rules by SEBI (Securities Exchange Board of India) which is a watchdog with quasi-judiciary powers. Of late SEBI has come down heavily on many companies who flouted their rules. I am personally investing through PMS, and am comfortable with the growth of my investments.
If I can be of any help I may be contacted on my email: stansouza@gmail.com. Best wishes to all my friends and well-wishers in India and abroad.