NRI investment: Should I invest in S&P 500 to benefit from INR depreciation?
I’m based in the Middle East (0% tax) and evaluating whether to invest in the S&P 500 to benefit from INR depreciation, or transfer funds to India and invest in mutual funds. While Indian markets offer slightly higher growth, FX-adjusted returns often match or trail the US. I plan to return to India in 5–7 years, but there’s a chance I may stay abroad longer. A concern is the hassle of repatriating funds from India later. What’s the smarter choice—stay invested globally or bring funds to India now? Looking for input on long-term returns, FX impact, and ease of access.
Advice by Rajani Tandale, Senior Vice President, Mutual Fund at 1 Finance
Your situation hinges on three key dimensions: returns (growth vs. FX-adjusted performance), taxation, and liquidity (ease of access and repatriation).
1. Returns: INR depreciation vs. local growth
You’re right to weigh the return differential. Historically, the S&P 500 has delivered around 10% annualized returns in USD, while the INR has depreciated by approximately 3–4% per year against the dollar over the long term. This combination often results in INR-adjusted returns of 13–14%, although recent dollar strength may have slightly skewed this average upward.
In comparison, Indian equities – especially through diversified mutual funds – have offered long-term INR returns of 11–13% CAGR. However, for someone investing from outside India, FX-adjusted returns on Indian equities can be more volatile, especially if the rupee stabilizes or strengthens temporarily. This makes the risk-reward profile less predictable from a foreign currency perspective.
2. Taxation and investment efficiency
Being based in the Middle East, you enjoy the advantage of zero tax on capital gains. This makes investing in global assets like the S&P 500 via ETFs or international brokerages extremely tax-efficient, at least until you become a tax resident in India.
On the other hand, investing in Indian mutual funds as an NRI attracts capital gains tax in India, even if you continue living abroad. Furthermore, repatriating money later – especially through an NRO account – can be paperwork-intensive and subject to compliance norms, including TDS and annual limits on outward remittance.
Also worth noting: dividends from U.S. stocks are subject to a 25% withholding tax, which may reduce effective returns unless you opt for growth-oriented or accumulation-based products.
3. Access and repatriation
Global investments generally offer superior liquidity and flexibility – you can move your funds freely across jurisdictions using international platforms. In contrast, bringing money into India now (via NRE/NRO accounts) means that repatriation later will require filing Form 15CA/CB, securing bank clearances, and may face annual limits. If your return plans change – or the INR depreciates sharply – accessing your capital could become more cumbersome.
What should you do
Given your current location and the uncertainty around your return timeline (5–7 years or potentially longer), it may be wiser to remain invested globally, especially in USD-denominated assets like the S&P 500. This gives you the benefit of capital appreciation, INR depreciation, and seamless global access.
That said, if your return to India becomes more certain, consider gradually shifting assets to India in a phased manner – possibly through SIPs or staggered allocations – to manage FX volatility and market timing risk. Finally, it’s important to evaluate this decision in the context of your overall financial goals and liabilities. A balanced asset allocation strategy should be crafted with your unique circumstances in mind. Consulting a qualified financial advisor would be a prudent next step to tailor the approach to your long-term objectives.
(Views expressed by the expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)