On the one hand, they must navigate the volatility and macro-economic uncertainty impacting investments across assets and geographies; on the other, their burden also includes the upcoming election plus tax and other matters back home.
Facing multiple challenges, these clients are seeking guidance for all aspects of their financial planning in 2019. In short, many NRIs in the UAE share four concerns:
- Tax and wealth planning issues
- The importance of risk management
- Diversification and long-term investment planning
- How to stay ahead of inflation
What keeps NRIs awake at night?
These result from several fundamental, day-to-day issues relevant to most – if not all – NRIs.
1. A dilemma for NRI clients relates to the ‘what next’ question, given their temporary residence status in the UAE.
Unlike in some countries where a track record of employment can give a foreign national right of abode, NRIs in the UAE have no such rights without certain visas.
This makes forward planning critical. Yet it calls for important decisions that these individuals understandably find difficult to make while currently in the UAE. For example, should they set up their own business in India? If so, when? Do they even have the capability or experience to run it? And if they set something up before they return home, how will they manage it? Alternatively, if they don’t want to set up their own business, how will they earn income in India? Do they need to secure a job before making the decision to leave the UAE? What is the impact on their current job and family security in the meantime?
Whatever the choice, there are various wealth planning and tax considerations that will need to be part of an NRI’s decision-making process.
2. Another question-mark for NRIs in the UAE is healthcare.
Although NRIs have medical insurance, many only have basic cover. Further, they need to plan for when they move back to India, either to work or retire.
However, the ability to secure coverage is always a nagging concern as people get older, as is the affordability of healthcare with age.
An NRI client will therefore need to weigh the pros and cons of buying a healthcare plan now and continuing to fund it before they move to India, compared with the risks of waiting.
Saying this, it is worth NRIs also factoring in the specific claims statistics we see. For example, cardiovascular disease accounts for over two-thirds of all deaths in the UAE. Further, we observe that more than 80% of our claimants suffered a critical illness or passed away when they were under 60. Read more about claims in the Middle East.
This also acts as a safety net that NRIs can factor into discussions about risk management and diversification.
Linked to healthcare is the consideration of emotional support in old age. This is relevant to NRIs, given the cultural shift from children (in previous years) accepting responsibility for parents when they get older, to children potentially living in a different city or country.
3. NRIs also need to understand tax implications from income in India.
A lot of NRIs will continue to own income-generating assets in India, such as rental yield from property or interest from fixed deposits. This creates considerations around the scope and extent of the individual’s tax liabilities back home.
This gets exacerbated at times like now, when retail banks are directly approaching NRIs with ‘offers’ to lend them money if they remit the funds to India to invest in fixed deposits.
In addition to tax, such decisions must be taken with a view to risk management, inflation, diversification and long-term investing.
While some of these borrowing opportunities might seem attractive at first glance, an NRI needs to carefully review whether they make sense from several perspectives, considering tax, foreign exchange and interest rates. Another factor is whether there is a meaningful use for investing additional – and potentially costly – funds.
4. Bridging the investment knowledge gap is a further talking point NRIs should address with a financial professional.
Inflation is a common topic of discussion at the moment. The problem for most NRIs – relating to areas of concern above – is they are either under-insured for the future or over-insured now.
Another aspect of inflation for NRIs is the expectation of future interest rates in India, since this is where they will likely use the savings they accumulate while in the UAE.
Further, other important considerations at this stage of the market cycle include:
- Thinking long term rather than getting caught up in market hype
- Diversifying and adopting a risk level they can live with
- Tuning out the noise to set realistic expectations
For more information on how to help your NRI customers, contact us via Zurich.ae