Use LRS route to start investing in property or for children's education

As the rupee depreciates against major currencies and the domestic market remains volatile, many high networth individuals (HNIs) are looking to diversify their investments overseas. Some international markets have done better than India, and if you add the currency appreciation to the returns, the overall gains are much better than what an investor would have made in the domestic market.
 
Sample this: International mutual funds that focus on the US, for example, have given returns between 19 per cent and 33 per cent in the last one year. The dollar has gained 4.8 per cent. The one-year average return from domestic large-cap funds is 10 per cent, and from multi-cap funds is 8 per cent.
 
Many investors also want to invest overseas as they want to send their children abroad for studies. They want to start building a corpus that will take care of kids’ education and also let them buy a second house that their children can use. But investing overseas comes with its own set of challenges and complexities. “The wealthy also need to see whether they should opt for a trust structure or invest via their overseas bank accounts. If an individual has assets abroad, he also needs to ensure that estate planning is in place for multiple geographies in case something happens to him,” says Nishant Agarwal, managing partner and head – family office, ASK Wealth Advisors.   
 
Open an account with a global bank: Under the Liberalised Remittance Scheme (LRS), an individual can remit $250,000 abroad. A family of four can, therefore, remit up to $1 million. Wealth managers say that the best way to start investing abroad is by opening an account with a global bank that has a presence in India. It will ensure that you always have a local executive here, who can guide you through all the formalities. If an HNI is planning to have assets (property or investments or both) in just one country, he can open a bank account in that particular destination.
 
If you want to have exposure to multiple geographies, opening a bank account in Singapore is the preferred option, according to wealth managers. The investments made from Singapore will be covered under the country’s investor protection laws, which are one of the best globally. “The country is also closer to India, and it’s easier to travel there. Being a politically stable country, it gives additional comfort to HNIs,” says Himanshu Kohli, co-founder of Client Associates, a multi-family office firm. Other popular options for opening a bank account include Dubai, the UK and the US.
 
You can sign up either with the bank’s private banking division or an independent advisor with a track record to help you plan and invest.
 
Options to buy property: Many developers understand that international buyers have a restriction on annual remittance. If you are purchasing a property directly from the developer, and it costs much more than the yearly LRS limit, realtors do offer options to pay in tranches. Many real estate brokers abroad also help to structure such payments.
 
The RBI has recently introduced a new regulation on overseas property purchases. In case members of a family pool their remittances to purchase a property, then the asset should be in the name of all the members who make the remittances. While the new rule increases the administrative work, it does not hamper investing in property. There are, however, still some grey areas in the LRS scheme when it comes to buying real estate abroad. It is also not clear when a person can take a loan abroad to buy a property and when he cannot. There’s also lack of clarity on whether a person can set up a company or acquire one, which can invest in property.
 

Avoid exotic products: If you are investing abroad for the long term to create a corpus for children’s education and to buy a second home or to shift base to another country, you need to prepare an in-depth financial plan estimating the corpus you will need in the future, separate each of your goals for investing abroad, calculate inflation, and so on. Most investment advisors suggest sticking to regular investment avenues such as managed schemes (mutual fund, private equity and venture capital) and bonds. Investors should avoid exotic investments such as wine, art or classic cars, at least in the beginning.
 
International funds for diversification: If a wealthy person is investing only for diversification of the portfolio, he can achieve it through international mutual funds available in India. It will help avoid the complex paperwork involved in LRS. Along with getting geographical exposure, an investor also gets currency exposure in these funds. None of the fund houses hedges the currency in these schemes. Some wealth management firms like Sanctum are planning to launch a strategy around these schemes. “Based on our views of the region that would do well, we will give a higher allocation to the country and lower to others. The portfolio will be rebalanced and reviewed periodically for such changes,” says Prateek Pant, co-founder and head of products and solutions, Sanctum Wealth Management.