Exploring Investment and Insurance Options Before Moving to the Middle East

I wrote an article on the investment options if a person is moving to the USA. You can read it here – What should I do with my investments if I wish to move to the U.S.? The article gave me the idea of writing an article if the person is moving to Middle Eastern countries.

About the author: Ajay Pruthi is a fee-only SEBI registered investment advisor*. He can be contacted via his website plnr.in. Ajay is part of the freefincal list of fee-only advisors and fee-only India.

In the previous article, the research was more toward understanding US taxes while this article is more about investment and insurance options as most Middle Eastern Countries do not charge any taxes on your income.

This guide is tailored for those relocating to Middle Eastern countries. Additionally, it’s strongly recommended to seek guidance from your financial advisors before making any definitive choices, as each step is contingent on your unique life stage and situation. Let’s begin.

This article will solely focus on investment and insurance options, If you’re interested in learning about tasks such as opening NRE/NRO accounts, and residential status you can refer to this article- My wife has an onsite assignment; what should she do with current investments?

To begin, it is essential to assess the need for insurance as insurance policies are the basic pillars of financial planning.

Health Insurance – Unlike other countries, establishing permanent residency in Middle Eastern countries can be challenging. Consequently, acquiring a health insurance policy for future needs upon returning becomes crucial. The question then arises: should you procure it now or upon your return?

It is advisable to purchase it NOW for three compelling reasons:

1. There’s a risk of being unable to obtain coverage in the future if health complications arise.
2. Even if coverage is obtainable later, it may come with restrictions or waiting periods for pre-existing conditions.
3. Currently, premiums for comprehensive coverage are reasonable.

Opt for a policy with a fixed premium, which remains unchanged unless a claim is made. Many insurance companies offer such policies nowadays, ensuring stability in coverage costs.

Term Insurance – If you have dependents, procuring term insurance is paramount. The coverage amount should align with your expenses and goals. Now, the question arises: should you buy it in India or in your country of residence? Preferably, opt for purchasing it in India for the following reasons:

1. Indian life insurance companies cannot repudiate a claim after 3 years from policy inception.
2. Fighting for a claim rejection in a foreign country can be challenging for your family.

However, there might be situations necessitating purchasing coverage in your country of residence, notably when the required coverage amount is substantial and Indian insurers are unable to offer complete coverage. In such cases, consider acquiring the maximum coverage in India and supplementing it with additional coverage in your country of residence.

Personal Accident Policy – It’s advisable to procure a personal accident policy in your country of residence. Policies purchased from India typically do not cover temporary total disability (TTD) in your country of residence, underscoring the importance of buying it locally.

Now, let’s delve into investment options available in India.

Investment Options

Provident Fund (PF): It’s wise to refrain from making withdrawals if you have funds in your PF account. PF accounts often offer favourable interest rates, making them an attractive option. However, bear in mind that if you’re not actively contributing monthly amounts to the PF account, the accrued interest becomes taxable in India.

However, if you have surplus income in India and fall under the 30% tax bracket, it might be advantageous to withdraw and invest it in Fixed Deposits (FDs) through an NRE account.

Public Provident Fund (PPF): If you hold a PPF account, continue contributing to it as the interest and maturity proceeds are tax-free. If you have a greater need for investing in debt instruments, consider opening a PPF account for your spouse as well.

For PPF accounts nearing maturity in the next 4-5 years, you can also consider opening accounts for your children and initiating minimum contributions.

NRIs are ineligible to open new PPF accounts or extend existing ones. They can only contribute to an existing PPF account until its maturity.

National Pension System (NPS) Account: It’s advisable to leave funds in your NPS account untouched. Even if you opt for withdrawal, you can only access 20% of the accumulated amount (if it surpasses 2.50 Lakhs) (assuming you’re under 60 years old). The remaining 80% must be utilized to purchase an annuity.

Furthermore, contributing further to the NPS account is discouraged due to the following reasons:

1. No tax benefits are available.
2. NPS imposes stringent withdrawal restrictions.

Superannuation Account: Certain companies offer the option for superannuation contributions alongside regular PF contributions. If you have funds in a superannuation account, it’s advisable to evaluate the returns on the account. If Fixed Deposits (FDs) offer superior returns compared to the superannuation account, it’s preferable to withdraw; otherwise, you may continue.

In such situations, it’s essential to verify whether your company allows the retention of funds in a superannuation account if contributions have ceased.

Sukanya Samriddhi Scheme: Under the latest regulations, if you’ve initiated a Sukanya Samriddhi Scheme for your daughter, you can maintain contributions even if her residential status changes to NRI. Continuing investment in the Sukanya Samriddhi Scheme is advisable due to favourable interest rates and tax-free maturity. If planning to relocate abroad, opening a Sukanya Samriddhi account for your daughter is recommended.

NRIs cannot open Sukanya Samriddhi accounts.

Fixed Deposits and Recurring Deposits (FDs and RDs): For NRIs residing in Middle Eastern countries seeking investment in debt instruments, FDs and RDs are optimal as interest and maturity are tax-free.

Stocks: NRIs can continue investing in Indian stocks, with tax obligations arising only upon selling stocks with gains or receiving dividends. Existing stocks can be retained if confident about their performance.

Mutual Funds: NRIs can continue investing in equity mutual funds, avoiding debt mutual funds. Instead of debt mutual funds, FDs and RDs are preferable. Taxation rules for equity mutual funds/stocks are identical for NRIs and Indian residents, with a 10% tax on gains above 1 Lakh for long-term capital gains units (held for over a year) and 15% for short-term gains. Tax is deducted at source during mutual fund redemption.

*India has bilateral agreements with UAE & Qatar regarding capital gains treatment, enabling NRIs to potentially avoid capital gains tax on mutual fund redemptions in India.

Choosing the Right Account for Investments

It’s advisable to utilize the NRE account for investing in mutual funds, FDs, RDs, etc., as it facilitates easy repatriation after redemption.

For other investments like traditional life insurance policies and ULIPs, the decision should be based on factors such as your goals, risk profile, existing investments, etc. There’s no need to surrender traditional life insurance policies or ULIPs if you’re uncertain about them. Similarly, if your ULIP investments are in debt funds and yield superior returns compared to FDs, there’s no urgency to surrender them.

What’s the ideal solution?

There isn’t a one-size-fits-all answer. It depends on your circumstances. Additionally, consider factors such as rental income (if applicable), real estate or agricultural land sales, and power of attorney, which are not covered in this article.

Before relocating to Middle Eastern countries, ensure you purchase term, health insurance, and personal accident policies from India.

Till then, happy investing!

*Disclaimer- Nothing contained in the article is a solicitation, recommendation, endorsement, or offer by me. If you have any doubts as to the merits of the article, you should seek advice from an independent financial advisor. Registration granted by SEBI, membership of BASL, and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors. Investment in the securities market is subject to market risks. Read all the related documents carefully before investing.