Investment Options for NRIs in Legal, Insolvency and Debt Asset Classes

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India is among the few nations that have been projected as one of the next world economic powers. According to a PwC report, India is expected to be the second largest economy in the world by 2050. This implies that investing in India is a lucrative option for investors. After 1991, India has witnessed tremendous development and growth in its economy over the past two decades, which has attracted Foreign Direct Investment (FDI). This trend has attracted NRIs as they find it a feasible place to invest and make profits. There are a total of 18 million NRIs living outside India, according to the latest United Nations reports. As an NRI, you can partake in some of the investment options available in India depending on your risk appetite and expected returns.

For decades, investors have relied on the so-called 60/40 portfolio – a mix of 60% stocks and 40% bonds, or something close – to generate sufficient stable growth and income. to achieve their financial goals. It did not disappoint, producing a total return of around 9% per year on average.

In these turbulent times, a traditional “60/40” allocation to stocks and bonds may no longer be sufficient to achieve long-term investment goals. With soaring inflation and rising interest rates, it becomes extremely important for investors to reconsider their asset allocation strategy. Indeed, stocks and bonds tend to fall in concert in a high inflation environment, leaving no place to hide. High and rising inflation is said to act like kryptonite for traditional asset classes.

Adding alternative investments is one way to soften or counter the blow. Alternatives, or alts, have the potential to generate excess revenue and returns, or alpha. An alternative investment is a broad term that generally refers to any investment that is not considered part of a traditional asset class such as cash, stocks, and bonds. While this leaves a substantial universe of options, some of the largest alternative investment categories include hedge funds, private equity, private credit, real estate, and structured products. Each of these categories is as diverse as it is broad and has its own unique characteristics and characteristics, as well as risk and return objectives.

Alternative investments have moved from the periphery of the global investment landscape into the mainstream. In just 15 years, alts have grown from 6% to 12% or $13.4 trillion of the global market in 2018, and are expected to grow between 18% and 24% by 2025. This rapid growth has been driven by institutional investors such as pension funds and endowments seeking opportunities for diversification and yield, as well as high net worth individuals. Despite this, many investors remain largely unfamiliar with alts and therefore may not use them effectively as part of a well-diversified portfolio.

Alternatives typically access differentiated return drivers and generate varying risk exposures. This can lead to their key roles within a portfolio – to potentially diversify the risk (hedge funds) of a portfolio due to their less than perfect correlation with traditional investments and their potential to earn high returns (capital -investment, including venture capital). Additionally, as they invest in a broader universe of asset classes, some alternatives may be able to generate a higher level of income (private credit and structured products) with less interest rate sensitivity. By including a variety of alternative investments in a portfolio, it may be possible to reduce risk without a commensurate reduction in expected return.

Investing in a whole new alternative asset class like Interim Finance is also something NRIs can look forward to in India. Indian companies like LegalPay are modernizing investors’ portfolios by becoming a trusted destination to access structured non-market-related revenue-generating opportunities in the insolvency, legal and debt markets.

Let’s explore the top 3 investment options in India that can generate enough stable growth and steady income for NRIs to achieve their long-term financial goals:

a) Litigation Funding: Litigation funding (also known as litigation funding) is the practice in which a third party unrelated to the lawsuit provides capital to a plaintiff involved in litigation in exchange for a portion of any financial recovery from the lawsuit. It unlocks the value of legal claims by providing capital to plaintiffs before their cases are resolved. Investors contribute amounts into an SPV (Special Purpose Vehicle) which further invests in various types of underlying investments based on the pre-agreed thesis.

b) Interim financing: Interim financing is offered to companies in insolvency, where resolution professionals need financing solutions to meet requirements and protect company assets. It is a super senior, short-term, asset-backed loan product that generates IRRs of 20% with a monthly payment structure.

c) Duties: These are debt securities that repay a borrower’s debt to a company or government. If a business wants to expand its business and operations, it needs money. One way to do this is to increase debt or issue bonds. Bonds are called fixed income securities because they have regular fixed interest payments and the principal is repaid at maturity. Today, there are platforms that work with NBFCs to bring covered bonds that are listed on their platform.

For NRIs, it is essential to know what type of accounts they should have to start investing. Many do not realize that using their savings account is illegal once they leave the country. In such situations, it is crucial to convert a savings bank account into an NRE or NRO account. An NRE account allows NRIs to seamlessly withdraw and deposit money in the currency of the country they have settled in and Indian currency. On the other hand, an NRO account is only partially repatriable. This implies that one can only partially withdraw money in a foreign country. It also only allows deposits of Indian currency. Although NRIs can invest in the above-mentioned asset classes, however, at present, due to various RBI compliance obligations, investments can only be made through a Non-Resident Ordinary Account (NRO).

As an investor, your investment options are entirely dependent on how much capital you have, how much you can invest, and your appetite for risk. Since an investor’s cash may be limited, they should consider all potential possibilities before committing to any one. During this time, an investor can seek advice from a professional investment advisor on the best options to invest in. Good investment!

(By Kundan Shahi, Founder and CEO, LegalPay)

Disclaimer: These are the personal opinions of the author. Readers are encouraged to consult their financial planner before making any investment.

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