Rupee at 96: NRI Investment Risks in India

The Indian Rupee hovering around 96 against the US dollar might make you think about sending money home, but Non-Resident Indians (NRIs) should approach this with caution. Sachin Sawrikar, Founder and Managing Partner of Artha Bharat Investment Managers IFSC LLP, advises a careful look at several key risks.

While a weaker rupee initially gives you more rupees per dollar remitted, it ultimately diminishes the dollar value of your INR-denominated investments over time. This long-term depreciation acts like a “currency short” on your holdings.

What a Weaker Rupee Means for You

Current Value: The Indian Rupee is currently around 96 against the US dollar.

Long-term Impact: A depreciating rupee erodes the dollar value of your India-based investments over time, requiring higher returns to compensate.

Many NRIs, especially from the Gulf, mistakenly see rupee dips as prime opportunities to send more money without acknowledging the existing depreciation of their current holdings.

Navigating Investment Hurdles

Even with easier digital onboarding, NRIs still face significant practical challenges. These include slower processing times through NRE/NRO accounts and continuous paperwork like FATCA, CRS, and TDS certificates.

Compliance burdens also mean limited mutual fund options if you are investing from the US and Canada. Before considering new investments, you should accurately assess your existing India exposure, including any property and family businesses.

Considering Your Account Options

For Indian equities and mutual funds, NRE-linked accounts are often recommended. These offer full repatriability and tax-free interest on foreign income, though the account type is distinct from the investment decision itself.

Sachin Sawrikar suggests focusing on differentiated Indian asset classes for incremental exposure. He highlights GIFT City Private Equity (PE) and Venture Capital (VC) as promising alternatives to traditional equities and mutual funds.

Understanding Tax Realities

Taxation is a major concern, extending beyond statutory rates to include residency disputes, compliance complexities, and administrative uncertainties. Deemed residency provisions, particularly for NRIs in low-tax jurisdictions, add further layers of complexity.

Equity Long-Term Capital Gains (LTCG): Taxed at 12.5% above ₹1.25 lakh.

Equity Short-Term Capital Gains (STCG): Taxed at 20%.

There’s growing interest in alternative products like AIFs, PMS, private credit, REITs, and InvITs, with PE and VC in GIFT City showing the most significant growth potential for differentiated exposure to Indian growth companies.

Crafting Your Investment Portfolio

For an NRI with ₹1 crore surplus and a 5-7 year investment horizon, assuming future spending outside India, Sawrikar suggests a diversified portfolio with a lighter India weight.

Your portfolio could include 15% in high-conviction GIFT City PE/VC.

Allocate 10% to diversified mid/small-cap equity funds.

Another 10% can go into GIFT City private credit.

Consider placing 10% in gold.

The largest portion, 55%, is recommended for dollar assets, such as a US index fund and a dollar-denominated GIFT City fund.

He sees no role for fixed deposits in such a portfolio, given the ongoing rupee depreciation. Sawrikar also notes a significant market gap for a GIFT City-domiciled global multi-asset fund that would allow NRIs to hold US and developed market exposure under an Indian umbrella.