Grandparent Gifting – Make your presence felt every day of your grandchildren’s lives by securing their future

By Arvind Krishnan, Product and Propositions Consultant, Friends Provident International, United Arab Emirates

December 2018

Research1 shows that children have a higher level of self-confidence when grandparents are more affectionate. The emotional relationship between grandparents and their grandchildren can have a significantly positive impact on a child’s academic, psychological, and social development.

As a grandparent you share a unique relationship with your grandchildren. You are typically viewed as the solid and dedicated caregivers in the family unit. You give not only love and affection but also instil in your grandchildren a sense of responsibility, and moral values, and you teach them to face the world and its realities.

It is you who provides a sense of family continuity and history; it is you who has stories to tell; it is you who is the custodian of your family’s cultural heritage; it is you who contribute to your grandchildren’s sense of belonging and security and it is you who acts as their role model.

In families where both parents are working, the role of grandparents has become more influential over the years as more are serving as surrogate parents to their grandchildren.

However, while it’s great to play such a significant role in your grandchildren’s formative years, you need to recognise a sad fact of life: your time with them is likely to be relatively short.

Keeping in mind your mortality, what can you do as a grandparent to ensure that your legacy lives on even if you are not around to enjoy the future with your grandchildren. How can you make sure your presence is felt in their lives every day?

You should consider gifting your grandchildren a life insurance policy, because a small gift once in a while goes a long way in expressing what words cannot.

A life insurance policy which stays with them for life, gives them access to money to fulfil their life goals and which works like a savings and investment account which means they can invest and withdraw whenever they want.

Education and marriage are some of the most important milestones in your grandchildren’s lives which require a significant amount of money. A monetary gift from you in an investment vehicle could go a long way to meeting these milestones.

Importantly, such a gift will also give you immediate tax benefits in India.

Gifting and Tax implications for Indians

As per Sec 56(vi) of the Indian Income Tax Act, the donor of a gift of any amount is not liable to tax. The specified assets that can be gifted are-

  1. Cash
  2. Land and buildings,
  3. Shares and securities
  4. Jewellery and bullion
  5. Archaeological collections
  6. Drawings, paintings, sculptures or any work of art

While the person receiving the gift will be subject to income tax if the amount of the gift is more than Rs.50, 000 (USD 850). The good news is that gifts received by a lineal descendant are not subject to income tax.

In addition, from an NRI perspective

  • When a non-resident Indian parent, grandparent, or relative, transfers cash or property as a gift, it is not taxable in the hands of a resident recipient.
  • Gifts of immovable property outside of India are not taxable.
  • Gifts to parents from NRE accounts of children are not taxable

However, any income generated from the gift, such as rental income or any gains will be taxed if the recipient is resident Indian (ROR). If, the recipient is a minor, the income generated will be added to the income of resident parents.

Reserve - the perfect gift for your grandchild

With Reserve, you can invest to build up capital for your grandchild and, as life moves on and their priorities change, they have the flexibility to adapt the plan to support their new aspirations. Your grandchildren or their parents can: Arrange for regular withdrawals on a monthly, quarterly, half-yearly or yearly basis, or, take one-off withdrawals whenever they need to.

  • Access the capital and cash in the plan at any time (an early encashment charge may apply).
  • Make additional investments at any time.
  • Actively manage the investment or leave the key decisions to an external fund manager or investment adviser

Reserve provides flexibility and tax efficiency, plus access to the world’s investment markets through a diverse range of assets. By holding the investments in one place and keeping the administration to a minimum, we make investing with us as easy as possible.

The best part about making a gift with Reserve is that it is for whole of life, which means your gift can be with your grandchildren for their lifetime

Safeguarding your gift through Trusts

You can safeguard your investment for your grandchildren by placing Reserve in private trust. A private trust is recognised in India under the Indian Trust Act, 1882.

This ensures your gift for your grandchildren is used as you intended both during your lifetime and after you die.

You can design the trust in a way that it pays for your grandchild’s education, if anything happens to you or design it in a way that pays a set amount at specific milestones in their life, so that they can’t access the entire investment immediately .

Why you may want to consider investing in Indian property

By Jasmeen Singh, Regional HR Business Partner, Friends Provident International, United Arab Emirates

August  2016

When big institutional investors like sovereign wealth funds and private equity are circling an investment sector like hungry sharks, it’s often a sign that there’s money to be made. Indian property looks like being one of those opportunities. KKR & Co. the private equity giant, has reportedly been picking up bargains in the form of distressed property developments in Mumbai, while Piramal Fund Management is said to have dedicated R150 billion  for similar purposes.1

The notoriously shrewd Singapore sovereign wealth fund GIC is also dipping a toe into the market.1 It is not surprising that they are seeking to cash in on prime Indian property. The market has crashed in recent years amid rising interest rates and rising economic uncertainty, leaving many flagship developments unfinished by their debt-laden developers.

Nevertheless, many developments may be considered ripe with potential in a country that was this year lauded as the world’s fastest growing major economy. For large institutions with billions at their disposal, now might be the time to cut deals and snap up property and land at bargain basement prices.

Good for those financial behemoths and their millionaire executives, but what about private investors like you and me? While a prime real estate development is probably out of our reach, we may still be able to take advantage of the current situation by setting our sights on a more modest residential property while prices are depressed.

Here are some reasons why now may be a good time to buy, and some other pointers to consider too.

Why now?

Falling prices: Pick an index, any index, and you’re likely to see that prices are down on a quarterly basis, or if not down then at least flat. Delhi’s residential market has been hit particularly hard, down by almost 22% over the past few years, according to property index MagicBricks.3

So if ever there’s been a time to buy, now would seem to be it, just ask KKR & Co. and the like.

Rupee depreciation: It’s not only the property market that’s been tumbling: so has the rupee, which hit a 30 month low against the U.S. dollar at the end of February this year.4 Despite rallying subsequently on the back of plans outlined in the budget to boost exports, the rupee remains cheap relative to other currencies. For NRIs who earn in foreign currencies, in my case UAE dirham, the buying power of our money when converted into rupee is greater at the moment than it was a year ago for instance, which is a further incentive to consider Indian property now.

Anything else?

Opportunities beyond the major metros:  while the likes of Delhi and Mumbai seem to dominate the property headlines, smaller cities are becomingly increasingly popular destinations for property purchases. Prices have not climbed as high in places like Pune, Hyderabad, Bangalore or Ahmedabad, to name a few, but these cities are major hubs and centres of commerce, making them good bets for the future. Even Goa I hear is becoming something of a hot spot for NRIs looking for an investment that could double as a holiday home. 

Finally – speak with a financial adviser

Buying a property is not something that should be undertaken lightly. Very large sums of money are involved and there are many risks to consider, not least if you are planning to borrow to fund a purchase. It’s always sensible to speak with a financial adviser, who will be able to provide advice on what may be the best course of action in your particular circumstances.

It’s also worth reading our Take Cover When Investing in Property guide, which provides useful information on a range of relevant topics, including why it is often sensible to obtain life and/or critical illness  insurance cover when buying a property.

All information contained within this blog correct at the time of publication, August 2016.






Jasmeen Singh is HR Business Partner at Friends Provident International. A non-resident Indian, she is originally from Mumbai, and has lived and worked in Dubai for the last 19 years.

Copyright 2016 © Friends Provident International Limited.
All rights reserved.

The views and opinions expressed are the personal views and opinions of Jasmeen Singh and do not necessarily represent those of Friends Provident International.

The contents of this article are for information only and do not constitute investment advice. Readers should seek their own professional advice before making investment decisions. Friends Provident International Limited accept no liability for loss of any kind incurred as a result of reliance on the information or opinions provided in this article.

Don’t let tax issues sour the dream of returning home

By Jasmeen Singh

9 December 2015

Most non-resident Indians (NRIs) plan to return to India at some stage, and for many of us it is a dream to go back home after we have secured ourselves and our families’ future financially by working abroad over the course of a long career.

NRIs usually remain financially connected to India in all sorts of ways, including by sending money back home to family and through holding property and other investments at home. But few properly consider the tax implications of earning income from investments in India while they are abroad. It is important to do so, because you could be bottling up a tax nightmare, rather than a dream, to return to.

According to Friends Provident International research, buying residential property in India is the number one priority of most NRIs, before they make any other investments.1 In the past, many NRIs would return home having not paid tax on rental income from their property, perhaps none the wiser that they even needed to.

Now they are increasingly returning to notices from the Indian tax department asking why they have failed to file tax returns for years, with a failure to reply reportedly resulting in the initiation of proceedings that could result in fines, seizure of property, even criminal prosecution and jail. Nobody wants to end up in such an embarrassing position, having failed to take care of their Indian tax obligations when they eventually return home.

Most expats are unwittingly exposed to this kind of risk rather than intentionally cheating the system. Nevertheless, they should consider that the Indian tax bureau is becoming more sophisticated in its tracking of transactions such as the income from investments in mutual funds, bonds, fixed deposits, sale of land, or rented property. And the ever growing use of web-based technologies and sophisticated ways of tracking them means that more of our transactions are being monitored.

The stakes are getting higher all the time. NRIs have a very strong savings ethic, with many NRIs in the UAE, for example, planning to save up to 70 per cent of their disposable income each year, according to Friends Provident International’s research. 2 Since most NRIs earn 30 to 40 times the average median income in India, there is the potential for a lot of savings to unwittingly end up in places where the tax implications may not have been properly thought through. 

For NRIs, there are alternatives to this kind of exposure, for example, investing outside of India in tax efficient structures and products which can be transferred back in to India when they return. The Indian government only taxes your income within India, so it is worth considering how to diversify your portfolio. In this new landscape it is perhaps more important than ever to remember that while many of us tend to rely on our families for financial advice, it may actually be more helpful to seek independent financial advice from experts in the tax landscape. And with increasing scrutiny from the Indian tax authorities on the assets and investments held at home by NRIs, it may well be time to review your portfolio and speak to a financial adviser.

1Friends Provident International Property investment guide

2Independent research conducted by AMRB in the United Arab Emirates, Singapore and Hong Kong on behalf of Friends Provident International, December 2014.

All information contained within this blog correct at the time of publication, 9 December 2015.

Jasmeen Singh is International HR Consultant at Friends Provident International. A non-resident Indian, she is originally from Mumbai, and has lived and worked in Dubai for the last 18 years.

The contents of this article are for information only and do not constitute investment advice. Readers should seek their own professional advice before making investment decisions. Friends Provident International Limited accept no liability for loss of any kind incurred as a result of reliance on the information or opinions provided in this article.

Ensuring your children can marry in style

By Jasmeen Singh

9 December 2015

With wedding season approaching, many non-resident Indians (NRIs) will find themselves flying home to celebrate nuptials with members of their family or attending a ceremony with fellow Indian expats abroad.

This annual tradition can form the mainstay of the social calendar for a few months each year and during this period we marvel at the food, lavish outfits, décor and grandeur of the events. The expense may be the subject of chitchat among guests yet it is only when you are paying for a wedding or contributing to its costs that the reality of the sums involved is usually fully appreciated. And when it is, the eye-watering nature of the figures may come as something of an unwelcome surprise.

I can fully understand why, for some people, the costs of such occasions don’t bear thinking about or why they might vow never to let their children marry. But for many of us, higher priority financial planning goals can often come first.

For example, research by Friends Provident International shows most NRIs focus their attention first on the purchase of property, then retirement planning, to pay for education costs, and finally to pass on some wealth to their children.1Paying for a wedding, while perhaps somewhere in the back of the mind for many of us, may not be something for which we actively put money away.

But thinking about it now could save you a great deal of money – and stress - in the long run. With my own children growing up fast, I’ve thought hard about whether I can afford to pay for the kind of wedding I would wish them to have, and here are some things you may wish to consider.

Who will be paying?

The average non-resident Indian (NRI) wedding costs USD 80,000, according to recent reporting by The Economic Times.2For many of us, funding a wedding from an annual income is simply unrealistic. How else might you consider paying for it? Have you discussed with your extended family how wedding costs might be covered in the future?

Often, the costs of a family wedding fall on you as a relatively higher-earning NRI. And, of course, many NRIs do find themselves supporting their families back home, with global remittances to India in 2014 exceeding USD 70 billion, according to a World Bank report. Wedding costs may well form a significant part of that (or at least will feel like they do!).

Tradition comes at a cost

Any NRI knows how important it is to marry on an auspicious day in wedding season, but that means the demand for venues on those days is higher.

A key thing to consider is that the importance to NRIs of many wedding customs means that cutting costs is not always an option. In theory, you could consider marrying off-season, choosing a venue that has been pre-decorated rather than decorating it yourself, or even having a destination wedding away from India, so as to cut down on the guest list. Clothes prices are always a big factor, so buying lighter, less expensive material is also an option. And instead of buying new gold jewellery as a wedding gift, you could consider gifting family jewellery instead.

However, we do know that giving your child a memorable wedding is something NRIs aspire to, therefore these ideas are not likely to be options.

A stitch in time saves nine

It is also important to factor inflation into the potential cost of a wedding. For instance, food costs are a significant factor in any wedding, after venue costs and decoration, and food cost inflation has been the driving factor behind rising household expenses in India for many years now.

The old saying that a stitch in time saves nine relates, here, to the financial miracle of compound interest. Assuming you are planning a wedding for your child when they are, say, 20, at a cost of USD 100,000, you would need to be saving USD 5,202 a year from their birth, assuming 3 per cent annual inflation, and a 5 per cent annual growth in the investment. Delaying saving for the wedding by just five years would require you to contribute an extra USD 2,769 a year to make up the same amount—that’s enough to fly back home a couple of times a year from many expat destinations, by the time the child starts elementary school. So it’s worth saving while you can, the earlier the better.

Getting your priorities straight

Instead of letting planning for big life events and milestones overwhelm you when, in the case of weddings, you should be enjoying the prospect of these grand occasions, it’s worth taking a calm moment now to review your situation. Friends Provident International’s dedicated website for NRI customers has a wide range of practical and useful information to help you get started and you might want to take a look at our Planning for the Perfect Wedding guide. You might also benefit from consulting a trusted adviser or financial planner.

With proper financial planning in place, peace of mind can be achieved and you can more fully turn your attention to other important or fun matters in life – such as Wedding Season!

All information contained within this article correct at the time of publication, 9 December 2015.

Jasmeen Singh is International HR Consultant at Friends Provident International. A non-resident Indian, she is originally from Mumbai, and has lived and worked in Dubai for the last 18 years.

1Independent research conducted by AMRB in the United Arab Emirates, Singapore and Hong Kong on behalf of Friends Provident International, January 2014.


Copyright © Friends Provident International.
All rights reserved.

The contents of this article are for information only and do not constitute investment advice. Readers should seek their own professional advice before making investment decisions. Friends Provident International Limited accept no liability for loss of any kind incurred as a result of reliance on the information or opinions provided in this article.

Ten tips for starting to plan for your expat child’s education

By Taher Fakhri

11 June 2015

Expat parents face many costs when educating their children, versus non-expats. This is because access to domestic school systems in their country of residence may not be available to expat children (as foreign nationals), and might be unsuitable for reasons including language, culture and curriculum. This usually means the only options will be to send children to a local fee-charging ‘international’ or private school, or overseas to a boarding school. These will typically be fairly costly but fees and expenses might be covered or offset through employer education allowances as part of expat worker relocation packages.

For many expats, it is sending their children to university when costs can really begin to mount up. This is because expat kids, even if they return to their home country for university, are usually classed as ‘international’ students, a categorisation that results in additional and higher costs, on top of the added expense that come with packing your son or daughter off overseas for their education. For example, Cambridge University’s own estimate of total costs for an international student completing a three year degree is USD 146,793 for a course beginning in 20151, of which about half is made up of tuition fees, and the remainder living and other expenses. Find out more in our guide to funding your children’s education.

That is why it is important to start planning for meeting the costs of your children’s education as soon as possible, even if they are still young (which is in fact an ideal time; if you start saving when your child is a baby you will give yourself the longest time possible to save up to meet the future costs).

Below are some key pointers for expat parents when planning for their children’s education.

  • Do your homework. Begin keeping a file on the subject of education costs, and add articles – such as this one – to it whenever you spot them.
  • Find out whether your employer has any schemes to help expat staff pay for private schools for their pre-university age children – nursery through to secondary school (up to age 18). While it is rare to be offered assistance with university fees, help with school fees is quite common.
  • Be aware that your child may not necessarily want to attend university in his or her home country by the time he or she is 18. Certain universities in the US, UK and Australia, for example, have become highly popular among international students but have generally high tuition fees.
  • Where your child attends secondary school will matter when it comes to applying to universities, as different countries work to different curriculums. A growing number of international schools understand this, and now offer the option, for example, of the International Baccalaureate. US universities look for SAT (Scholastic Aptitude Test) or ACT (American College Testing) exam results, while UK institutions want to see A Levels. The time to consider which qualifications your child needs is not the year before they’re due to go off to university, but earlier.
  • If your plan is to return to India in time for your children to attend university as an Indian resident student, think about how you can arrange to be Indian resident – so that they will also be – before they would be starting university. (This is likely to involve some discussion with your current employer, or possible future employers back in India).
  • Don’t forget that tuition is only one of the costs of a college education. Living costs, equipment such as computers, textbooks and other learning tools can eat up considerable sums of money as well. For school-age children, additional costs could include uniforms, sports equipment, lunches, travel and trips and extra-curricular activities.
  • Make sure your child is aware of your efforts to save for his or her education; it is never too soon to learn the importance of saving, and how the business of investing and saving works.
  • As an expat, currency is likely to be a consideration when thinking about your finances; you may earn in one currency but pay education costs in another. Speak to a professional adviser about ways to hedge currency risks. If you know the likely currency in which education costs will be denominated, you could save directly into this currency to avoid the risk of suffering damaging currency fluctuations later on.
  • In addition to establishing an education savings fund, consider safeguarding your investment with insurance cover. Life, critical illness or disability cover can be taken out to the value of specific sums set to meet future education costs. If you were unable to continue saving, these policies could cover any funding shortfalls.
  • Speak to a financial adviser about creating a financial plan to help you most efficiently save and invest to meet future education costs.

Friends Provident International Education Funding guide

This document is for information only. It does not constitute as investment advice or an offer to provide any product or service by Friends Provident International. Please seek professional advice, taking into account your personal circumstances, before making investment decisions. We can accept no liability for loss of any kind incurred as a result of reliance on the information or opinions provided in this article. All information contained within this blog correct at the time of publication, 11 June 2015.

Taher Fakhri is Head of Regional Strategy and Risk at Friends Provident International. A non-resident Indian, he currently lives and works in Dubai.

Three steps that could help to ensure that the strengthening rupee is good for your portfolio

By Taher Fakhri

19 December 2014

The strengthening Indian economy is good news for non-resident Indians (NRIs) for many reasons; among them that investments and assets held in India should benefit from the country’s improving long-term growth prospects.

But there are two-sides to every story and many NRIs have financial commitments in India. These might include mortgages, investment plans, insurance policies, school and university fees and remitting money to family at home.

On the back of a resurgent Indian economy, it will become more expensive for NRIs to meet rupee-denominated financial commitments if they are paid from salaries and income received in a local currency of the jurisdiction or country in which they are employed. So what can be done to offset these increasing costs?

  1. Review your financial commitments in India

It is worth reviewing whether the amount of money you need to convert into rupees can be reduced. Ask yourself whether all of your financial commitments are necessary. Do you have insurance policies that are no longer needed or could other payments be refinanced or renegotiated at better rates?

  1. Transfer investments into rupee denominated investments

As an NRI, it often makes financial sense to hold investments in internationally mobile structures and tax wrappers, such as those provided by Friends Provident International. The reasons for doing so are many and have been covered in a previous blog. If you do this, it is possible to mitigate the effect of a strengthening rupee by switching into Indian equity or bond funds with a rupee share class. Friends Provident International offers several of these funds. In addition to helping to offset currency risks, investing in these would allow an investor to tap into the growth potential of the Indian economy in a liquid, internationally portable and tax-efficient investment vehicle.

If you hold a large proportion of your savings and investments outside of India, you may want to think about gradually transferring some of these back, perhaps over a period of a few years, particularly if it is your long-term ambition to return there. Transferring a portion of your assets will reduce currency risk and allow them to benefit from domestic economic growth.

  1. Review your savings and investments held in India

Do you have savings and investments that are generating interest and income in India? Could some of this be used to help meet domestic financial commitments and thus reduce the amount of money you need to convert from foreign currency into rupees? It is worth asking yourself these questions to see whether exchange rate risk could be reduced in this way.

Through my experience, I have found effective ways to diversify my portfolio while increasing my exposure to the rupee – and therefore hedge currency risk. My diversified portfolio could include Indian equity and bond funds, buying bricks and mortar property or investing via a property fund, opening a savings account in India. I am also considering investing directly in the stock market via self-directed investment platform in India.

The contents of this blog are for information only and do not constitute investment advice or an offer to provide any product or service by Friends Provident International (FPI). Readers should seek their own professional advice before making investment decisions. The value of investments may go up as well as down and you could get less back than you’ve paid in.

All information contained within this blog correct at the time of publication, 19 December 2014.

Diversification: seven things non-resident Indians need to know about diversifying their investment portfolio

By Taher Fakhri

21 November 2014

Diversification, also known as the ‘don’t put all of your eggs in one basket’ theory of investing, is one of the most important concepts you need to know about when creating an investment portfolio. In my last blog, we looked at why you should diversify your investments.

In this latest blog, we look at how you can go about creating a diversified investment portfolio, particularly when you are a non-resident Indian (NRI) living in, say, UAE, Singapore or another foreign country?

As we note in our article “Why you should temper your enthusiasm for traditionally held investments’’, there are specific considerations for expats when investing, for instance currency fluctuations or restrictions on foreigners owning property.

The need to consider such factors, and the possibility that others may exist, can make diversifying your investments a lot more complicated than it might be for someone who is living in their home country.

Still, there are some basic points that, regardless of where you live, expat or not, you may want to consider when thinking about diversification.

1: A conventionally diversified portfolio would generally be thought to contain up to six asset classes: stocks, bonds, property, cash, commodities and alternative investments.

Part of the art of investing comes in the way these asset classes are held; the geographic location of the investments and the proportion invested in each.

Stocks and bonds, for example, may be held directly or in mutual funds or ‘collectives’ as they are sometimes called, because they are owned by a collective of investors; property and commodities too, are commonly held in these ways.

‘Alternative investments’ are less an asset class and more a broad category that can include everything from hedge funds to financial contracts such as derivatives, stamps or collectibles. A common characteristic of ‘alternatives’ is that their price or value should behave differently to, or have a low or negative correlation with, more mainstream investments such as equities and bonds.

The proportions of each of these asset classes investors hold are likely to vary with personal circumstances, investment goals and attitudes to risk, but prudent investors may limit their exposure to higher-risk assets as they get closer to achieving a saving/investing goal.

2: Mutual funds are a good way to diversify a portfolio; but investing in mutual funds doesn’t automatically result in diversification.

Mutual funds are one of the most common structures through which people invest in different assets. They are popular because they are professionally managed, usually ‘liquid’, so people can access their money relatively easily, allow people to pool their wealth to optimise its growth potential and achieve greater diversification across a larger number of underlying holdings. They can also offer a degree of security and peace of mind through being subject to various rules and usually oversight by a financial regulator.

When it comes to diversification you can choose 10 different mutual funds and still be undiversified. A portfolio of mutual funds is unlikely to be considered diversified if all the funds invested in stocks in the same market or country; or stocks in different markets but in the same industry.

3: An important goal of diversification is to avoid ‘correlation’.

The value of different asset classes and investments around the world rises and falls every day in response to any number of events. One measure of a well-diversified portfolio is how little some components of it are affected by developments that have a strong effect on another part.

The more the various investments in a single portfolio rise and fall together, the more they are said to be ‘correlated’. The less correlated your investments are, the lesser the chance of them falling in value together.

4: Gold can be a good diversifier because it is ‘negatively correlated’ to many mainstream asset classes.

Gold has long been regarded as an ideal portfolio diversifier because it is historically among the most negatively correlated assets available to investors. In other words, in many instances it rises in value when other asset classes such as equities, bonds and property are falling. Gold may help to stabilise portfolio returns even during periods of financial instability. In 2008, as our report ‘The Importance of Diversification’ demonstrated, gold was among the few assets that produced a positive performance, yielding those investors who held it a gain of 2%. During this same period, some major asset classes fell by more than 50%! However, gold has fared less well since and in 2013 fell by almost 30%. 

Before making any investment decisions, you should speak with your financial adviser about developing a suitable balance of investments to match your attitude to risk. 

5: Bonds and equities are seen as polar opposites in portfolio construction.

Bonds and equities, held together in the same portfolio, make ideal portfolio diversifiers because they tend to move in opposite directions. This is because the market conditions that are good for equities tend to be less positive for bonds, and vice versa.

When investors make a periodic swing from equities to bonds, or the other way round, in response to the way the markets are moving, equities and bonds are said to be in ‘rotation’. 

How long such rotations will last is rarely predictable, thus strengthening the case for having both equities and bonds in a portfolio. 

6: Predicting a coming year’s outperforming region or market is ‘more or less impossible’.

In 2008, the worst year of the recent global financial crisis, US equities, as represented by the S&P 500 Index, registered a 37% decline in value at year’s end. Only five years later, the same index produced a 32.39% gain, placing it at the top of our chart of key asset classes, as measured by performance between 2003 and 2013. 

Likewise, emerging market equities, as represented by the MSCI Emerging Markets Index, posted a decline of 53.18% in the 12 months to the end of December 2008, only to return 79% during 2009. 

It could be argued that emerging market equities had nowhere to go but up after a 53% fall. However. the main take-away from our data of key asset class performance over the 10 years to the end of 2013 is that performance of all asset classes varies much more widely than most people would have expected. 

This shows yet again why diversification is so essential. As explained in our report ‘The Importance of Diversification’, “Investment experts might be able to suggest potential investment opportunities, but it is more or less impossible for anyone to predict which asset class or geographical area will deliver the best return each year”. 

7: Being a diversified investor means getting used to keeping your nerve when assets you hold are going through a torrid time. 

If your portfolio is well diversified, it will probably hold whatever asset class is currently performing well but also investments that are doing less well. For some investors, resisting the urge to unload the under-achievers and buy more of the high performers can be difficult. 

If you find yourself in this position, you may want to take a step back and think about considering a broad mix of return levels as evidence of the success of your diversification. If your top performing asset class suddenly falls heavily, you will be glad you had not switched all your investments to chase those higher returns. 

It is worth remembering that a properly diversified portfolio is likely to generate a more stable and steady level of returns, with less steep swings in valuations or volatility, than if you put all your investment eggs in one basket.

This blog is for information only and should not be considered investment advice.

All information contained within this blog correct at the time of publication, 21 November 2014.

The importance of a diversified investment portfolio

By Taher Fakhri

29 May 2014

Our recent research* shows that many NRIs keep the majority of their savings and investments in India. In financial terms, this is known as a ‘home bias’ and it’s something that numerous studies have shown all people have a tendency towards. However, doing so arguably exposes your financial assets to a number of potential risks that you may not have fully considered.

Here are five reasons why you could consider alternative investment strategies:

  1. Ease of access

As an NRI who lives in Dubai, I put my money in investment vehicles that can be managed simply and tax-efficiently regardless of my country of residence. That way, should I need to access capital I can get it relatively easily, whether I am living in Dubai, Hong Kong, Singapore or somewhere else.

  1. Diversification

Keeping the majority of savings and investments in India – whether in the form of property, cash, insurance policies, stocks or mutual funds - exposes you to a high degree of country-specific risk. An internationally portable saving or investment plan can help mitigate these risks by providing you with access to a wide range of underlying assets, such as equities, bonds, property and different currencies, in collective investment funds that can help achieve global portfolio diversification.

  1. Currency risk

Currency fluctuations can have a huge impact on the value of your assets. The Indian rupee is by global standards a relatively volatile currency. Its value is prone to considerable fluctuations and it has depreciated against the dollar (to which the UAE dirham, Singapore and Hong Kong dollars are linked) significantly since the global financial crisis of 2008. Over the past few years the value of your rupee denominated savings and investments will almost certainly have depreciated in dollar terms. At the same time inflation in India is high, which further eats into the value of your cash savings. Should you need to access investment capital that is held in India and repatriate it to your country of residence, you could incur a substantial loss as a result of exchange rate fluctuations - and a weak rupee - if your timing is unfortunate.

  1. Simplicity

Expats such as NRIs tend to travel around and many have worked in more than one overseas location. This can result in you having financial assets spread across different countries, denominated in different currencies, subject to different tax regimes and rates and held in different investment or savings structures. It may be prudent to consolidate at least some of your savings and investments in a central solution offered by a global financial institution. This provides greater simplicity, portability and efficiency.

  1. Minimise tax liabilities and costs

Holding your savings and investments at home in India means they may be liable to local taxes, while transferring financial assets to and from India can incur high costs. Jurisdictions such as the UAE, Singapore and Hong Kong – where many NRIs live – are low tax environments and it may make financial sense to take advantage of this by holding at least a proportion of your assets locally in order to potentially reduce any tax you pay on them.


There are many good reasons why you could consider diversifying your investment portfolio, both by asset class and geographically. However, everyone’s finances and personal circumstances are different and you may want to think about seeking the help of a professional financial adviser who will try to help you to structure your finances to maximum effect.

All information contained within this blog correct at the time of publication, 29 May 2014.

*Independent research conducted by AMRB on behalf of Friends Provident International, January 2014.

Next Steps

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