x Abu Dhabi, UAESunday 21 January 2018

Home bias can harm Indian investors

Home bias is term coined to explain behaviour of an investor who is residing abroad but allocates major portion of investment in his motherland purely because of ease of transacting in known region.

"Home bias" is a term that explains the behaviour of an investor living abroad, but who allocates a major portion of his investment in his home country - usually because of familiarity.

Many non-resident Indians (NRIs) prefer investing their surplus cash in India.

This is perhaps because they feel more confident in their knowledge of the home investment environment. But what many forget is that while they are earning in a foreign currency, almost all of their wealth is being invested in a single currency, in this case the Indian rupee.

This leads to a concentration of wealth in a single region. Yet, the fact is that NRIs have a great advantage in being able to invest across the globe, allowing them to diversify their finances across regions.

Keeping in mind that the children of some NRIs may not want to return to India, and may look to other parts of world for their education and careers, it is prudent that NRIs invest across the globe and avoid restricting their finances to just India.

Even if they do want to invest in India, there are several offshore funds they can choose from to do so. Some are based in western, financially mature markets and some are in tax havens.

The benefit of investing in these funds is that investors generating returns from underlying Indian securities are saved the hassle of adhering to any local regulation and taxation. There are several well-known Indian and foreign financial institutions that offer such plans.

* Gaurav Mashruwala