Here are some thoughts on what the Indian government can do to induce NRIs further to remit and invest more in their home country
So we have one more day when the Indian rupee was against the wall and had to succumb to the level of 64 against the US dollar. The bears apparently took a breather and did not pursue the kill. Maybe, they are planning for one on Friday for an outright onslaught.
The estimate of non-resident Indians (NRIs) - all categories - has widely varied from 30 to 40 million now. For the purpose of this article, let us take it at the lower rate of 30 million residing abroad in various categories. The largest concentration is in the Middle East, estimated at 20 million plus. The second lot, said to be in the Far East (mostly in Malaysia, Singapore, Indonesia) are about seven and 10 million; US has three million, UK at two million and rest of the world five million. On second thoughts, it should really be more than 30 million because we left out the whole of Africa, Latin America, China, Europe, Eastern block and Australia, New Zealand, as these should account for a few million more.
Anyway, the point at stake is that except for the Middle East where permanent residency has too many conditions to comply, other areas offer wide scope and opportunities for permanent stay leading to citizenship also.
By categorizing all these people as NRIs, we clear the slate and take it for granted that all these people have reasons to remit part of their earnings back to India on a regular basis.
And how do they remit? A large percentage of them, say about 70%, remit the funds back to India through normal banking channels, thanks to the setting up of branches of Indian banks in most of the countries where there is a growing Indian population. The balance may be said to be using non-banking channels, such as the ‘hawala’ route. This is debateable as only guestimates can be made in the dark and no reliable information is available, unless we have some information from the government agencies.
The purpose of remittance covers, generally, the following activities:
a) To meet the cost of maintenance expense of the family left behind by the NRI who has left (say) on a job overseas. Initial remittances cover his/ her travel costs, visa charges, agent fees and other money borrowed for the purpose of travel. In addition, this expense may cover several months of earnings by the individual concerned.
b) Subsequent remittances may be to truly meet family expenses, on a regular basis, to cover cost of education of children, purchase of essential household items and medical expenses. It must be remembered that getting the family members to join has too many hurdles in the Middle East and similar immigration formalities in other countries too.
c) Once settled (2/3 years from departure date) the NRI may return to meet the family and then plan repairs to the family home (if any) and or plan a purchase of land, flat so as to ‘acquire’ a personal property.
d) It is by this time, NRI gains the knowledge to ‘save’ and ‘invest’ in a little more systematic way as the previous year’s earnings were mostly directed to settle loans and other obligations created as a prelude to getting the job abroad.
e) The educated class of NRIs and some others become enlightened to open non-resident external (NRE) rupee accounts have foreign currency deposits (FCNRs) and also take the much needed insurance cover for the family.
f) Those NRIs who manage to get into western countries, such as USA, UK, Europe and eastern group like Singapore, Malaysia and Australia consider themselves as lucky because the immigration policies open up the prospects for permanent settlement, more often than not leading to citizenship.
g) With the government of India relaxing the rules and making dual citizenship procedure reasonably easy, it makes life a lot more easier for NRIs to target the countries of their choice locations.
The remittance from NRIs is substantial and is said to exceed $20 billion every year. Most of them, particularly those settled in the US and UK are very well to do, and have huge business interests abroad running into billions of dollars. These people of Indian origin, holding the nationality of the adopted countries have also returned to India to invest and the government offers them a wide range of benefits and special consideration to welcome their investments into the country.
Now, what can the government do to induce them further to remit more and invest more in the country? Here are some thoughts for the government to seriously consider…
a) Offer Indian Sovereign NRI Bonds, valid for 5 years, at a flat rate of say 9%, payable in rupees, freely transferable at maturity; this may be extendable, by the beneficiary, for two more terms at an additional bonus of 1% for the entire duration
b) At the time of maturity, if the account holder (NRI) decides to accept the Rupee in non-convertible account, give an additional 1% to 3% interest, permitting the use of the total amount in specified areas of investment, such as setting up production, infrastructure facilities, educational institutions and other areas that the government may nominate at that time
c) The interest earned on these bonds can be reinvested in treasury bonds for a minimum of three year period, after which, the whole amount can be repatriated and not subject to any tax
d) The face value of these Bonds will be in multiples of $1,000 or £1,000 and freely transferable to members of the same family - resident or non-resident - but need to be pre-identified at the time of initial purchase
e) The government may also relax the rules pertaining to investment by NRIs holding dual citizenship in areas of agriculture i.e. purchasing, owning farmland and actually involved in farm production, against the current policy that prevents purchase
Instead of procrastinating the issue of Sovereign Bonds, the Indian government must go ahead and bring this out immediately, preferably well in time before Diwali so that NRIs can take the opportunity to subscribe. In fact, this can be a regular annual feature to ensure that additional funds come into the country.
(AK Ramdas has worked with the Engineering Export Promotion Council under the Ministry of Commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)
Value investing requires a great deal of skill and experience. To deliver market-beating returns, the fund management would have to effectively pick undervalued stocks
Peerless Mutual Fund plans to launch an open-ended equity scheme— Peerless Value Fund. As the name suggests, the schemes would invest predominantly in equity based on a value investing strategy. The scheme would invest a minimum 80% of its assets in equity and the remaining portion of the portfolio would be invested in debt and money market securities. Value investing strategy employed by the scheme would look to invest in stocks at a discount to their intrinsic value, as indicated by low price-to-earnings, price-to-book, and high dividend yields. Value investing has proven to be a successful investment strategy worldwide for some, but a lot depends on the investors or, in this case, the fund managers’ judgements on picking ‘mispriced’ stocks and avoiding value traps. Formula does not work.
There are six schemes which follow a value investment strategy and have a track record of greater than three years. The returns of these schemes have varied significantly over the last one-year, three-year and five-year periods. Therefore, value investing requires a certain degree of skill, which not all fund managers posses. Among the schemes that are in existence, ICICI Prudential Discovery Fund has outperformed its benchmark over the one-year, three-year and five-year period. Sahara Star Value Fund has been the worst performer of the one-year and three-year period with a return of -18.50% and -10.25% respectively. Birla Sun Life Pure Value Fund and UTI Master Value underperformed their benchmark over the one-year and three-year periods.
Peerless Mutual Fund has just one equity scheme in existence—Peerless Equity Fund. The scheme which was launched in September 2011, has delivered a return of 14.20%, while its benchmark CNX Nifty delivered a return of 9.81%. The scheme is managed by Kaushik Dani, who would also manage the new scheme when it is launched. Has over 14 years of experience in fund management.
Other details about the scheme
Benchmark: CNX 200
Minimum Application Amount
Rs. 1,000/-and in multiples of Re. 1/- thereafter
Minimum Additional Purchase Amount
Rs. 100 and in multiples of Re. 1/- thereafter
Annual Recurring Expenses
Maximum total expense ratio (TER) permissible under Regulation 52(6)(c)(i)&(6)(a): Upto 2.50%
Additional expenses under regulation 52(6A)(c): Upto 0.20%
Additional expenses for gross new inflows from specified cities: Upto 0.30%
Exit Load: 1% if redeemed before 1 year