What To Do With Investments In USA After Moving Back To India?

Should you liquidate all your investments when moving back to India? Should you keep the money in the USA? 

If you have spent a few years in the US, you might have accumulated a nice nest egg. You most likely invested in stocks, ETFs, and bonds through either your brokerage account or your 401K. Even if you did not invest a lot, you probably have significant savings sitting in your checking or savings account. 

Deciding what to do with your money is a very personal decision and will depend on a lot of factors. No one can predict the future but here is my attempt to list down all the factors to consider and share my thought process for making this extremely important decision. If you are looking for guidance on what to do with your 401K, please look at A Guide To Managing 401K After Returning To India. The information below is about general investments and keeping money in the US vs India. These are just my opinions and views and are by no means meant to be financial advice. There are a few factors to keep in mind before making this decision.

Comfort level with keeping money in a foreign country

There is a general belief that you should always keep your money in the country you want to spend your life in. Depending on how conservative a person you are, you might feel uncomfortable leaving a lot of money outside the country. What if the USA accounts get frozen? What if you lose access to online accounts? These are all valid concerns but in my opinion, slightly overblown. There are ways to make sure your accounts keep functioning even after moving back.

Our view: While I tend to agree that you should keep the money close to home but if you do your research properly, there is little risk in keeping money in the US purely from a safety perspective (estate taxes are a risk). US accounts are FDIC-insured up to $250,000 for every account holder. Make sure your banks support international residents and you most likely will not have issues.

Taxes

This is one topic that causes the most confusion with no real answers in sight. If you are a green card holder or a US citizen, US taxes are a reality for your entire lifetime. If you are neither a US citizen nor a green card holder, then you will become a non-resident of the US and you will have an additional complication of dealing with taxes in the US and India. There are a few different types of taxes:

1. Capital Gains: This is the tax that is levied based on gains in your stocks. The US does not tax capital gains for non-residents.
2. Tax on dividends: This tax is applied to all dividends you receive in the US. You will need to take care of foreign tax credits while filing for taxes in India.
3. Estate Taxes: Simply put, USA will tax your assets in the US in case of your death. For residents, the limit is about $12M so it is less of a concern. But, for non-residents, the exemption is only up to $60,000 which is easy to hit. That means that any amount above $60,000 will be subjected to estate taxes of 18-40%. This is a real risk if you own a home or have large holdings of stock and my primary reason to consider moving money to India. Source: IRS

Our view: Being tax compliant in both the US and India is a real hassle and pretty expensive if you are a couple (estimate: about $500 in USA and about $400 in India every year with all these complications, USA returns might stop after a point though). I just finished my RNOR period and will be filing as a resident this year in India. I have heard not-so-great things about the experience of claiming foreign tax credits and all the explaining that needs to be done to the authorities. Add estate tax to the mix and it slowly tilts the favour in moving the assets to India. The AI boom and future returns of S&P 500 over the long term surely look enticing but may not be worth the other issues that come with it. Besides, it is now possible to invest in US stocks from India as well (although not as straightforward and efficient as investing directly from the US), I’m going to wait to see how my Indian income tax returns experience as a resident goes before taking a call on this.

The India Growth Story

Historically, India has been like that child who had a lot of potential but did not live up to it as an adult. There is a narrative that this is going to be India’s decade, especially with China slowing down. But, there have been doubts about the validity of growth and inflation projections. It has been hard to reliably parse out the marketing and optics from reality and form a point of view on India’s future. What we can do however is observe the situation in our daily life to get some insights. Whatever has been happening on the ground for the last few years has been encouraging and I believe India is heading in the right direction. Will it outperform the US is a different question altogether.

Our view: I have been a staunch believer of the “Don’t ever bet against the US” narrative and a part of me fears taking out money from the US and the FOMO I might feel if India does not live up to the expectations. Gargi, my wife (a finance professional) has the opposite view and is extremely bullish on India and does not want to miss out on the decade of growth. So far we have followed a diversified approach to investing in both countries (with a bit more weightage to India) so we do not miss out on returns. We will continue monitoring the situation and change our future strategy accordingly.

USD vs INR Trend

Historically, INR has been depreciating at about 3-5% per year. This depreciation eats into your returns if you convert your USD to INR. For example, if you invest in the Indian markets and your rate of return is 12%, your actual rate of return is about 7-8% due to rupee depreciation. You also lose out on potentially higher returns in the US markets (the S&P500 has been close to an all-time high at the time of writing this). For example, we had been investing in Indian mutual funds when we were in the US. While absolute returns are great, when we take into account the currency devaluation and the opportunity cost of investing in US markets, the returns don’t look that great. We would have been better off keeping the money in the US itself.

Our view: I have tried to do some research on the future trend and have found strong arguments for both appreciation and depreciation of the rupee. After going back and forth, I have developed a framework that works for me.

1. The default assumption is that the historical trend will continue and the rupee will keep depreciating so all dollars are kept as is.
2. I have decided to convert dollars to rupees only when required. This includes money for an apartment, renovation, one-time large expenses or spotting an incredible investment opportunity that we think has a huge upside that will negate the INR depreciation.
3. Monitor USD to INR rate periodically. You don’t have to make a one-time decision on the future of rupee depreciation. If you observe the historical trend, the depreciation has been gradual barring a few exceptional scenarios. What this means is that even if the rupee starts appreciating against the dollar and the historical trend reverses, you will most likely have enough time to react when that happens. Of course, historical trend is not a guarantee of the future but it is unlikely that the rupee will appreciate by 20% overnight and you will lose your dollar value. You can set up some rule to transfer X USD every time INR appreciates by Y% and stays at that level for some time. This way you take out the need to take an immediate bet on USD-INR and follow a rule-based approach to minimise the downside risk.

Kids Education & Nationality

If you have kids and they are US citizens, there is a very good chance that they will go to the US for further studies. If you see that happening, keeping an equivalent amount invested in the US is a good idea. You can treat that as their college fund. Converting INR to USD is much more expensive than vice-versa.

Our view: I plan to keep some money in the US for my daughter’s future education. While I have not assigned this money to her education, I’m treating some of it as being reserved for her education. I may or may not use it for her education in which case it can be repurposed for something else in the future.

Future Plans To Move Back To USA

A lot of people move back to India as an experiment for a few years and that is completely fine. If you envision coming back and living in the US in the future, then it makes sense to keep money in the US.

Our view: This factor does not apply to us since we have no plans of going back. Even if things were to change in the future, we have decided not to plan based on this premise since it currently seems unlikely.

I hope this can serve as a framework to decide what to do with your money. Personally, we have been following a diversified approach rather than taking big bets because that aligns with our risk profile and investment goals. Due to the uncertainty involved, there are no easy answers to this question but knowing all the possibilities and being aware of the rules can help us make a better decision at this point.