6 common mistakes NRIs should avoid while starting their investment journey

For many non-resident Indians (NRIs), investing in India is an important part of building long-term wealth and maintaining financial ties with the country. However, it is quite crucial to avoid the common pitfalls of investing right at the beginning.

When investors overlook regulatory requirements, tax implications, and portfolio diversification, it can prove to be a costly affair for them, caution experts.

Therefore, getting the basics right, especially around account structures and compliance, can help avoid complications later and ensure smoother investment management.

Here are six common mistakes that NRIs must avoid while starting their investment journey:

1. Ignoring FEMA rules and account restructuring

A common mistake NRIs make is continuing to use their resident bank and demat accounts even after their residential status changes. According to Akshat Garg, Head – Research & Product at Choice Wealth, for NRIs just beginning to invest, the starting point isn’t chasing the hottest mutual fund or property deal — it’s getting the foundational structure right under FEMA rules.

“Once you become an NRI, your old resident savings and demat accounts must be converted to NRE/NRO status; using them as before risks FEMA violations and headaches with repatriation later,” he said.

Different accounts serve different purposes. Foreign earnings flow into an NRE account (fully repatriable, interest tax-free in India), while India-sourced income like rent or dividends goes into an NRO account (taxable, with repatriation caps).

Similarly, Jones George, Executive Director at Geojit Financial Services Ltd, stressed the importance of redesignating accounts promptly.

"Continuing to use resident savings or demat accounts can lead to FEMA violations and penalties. Opening the appropriate NRE, NRO, or FCNR accounts is essential, as account structure directly impacts investment eligibility, taxation, and repatriation of funds," George said.

2. Over-investing in real estate

Real estate continues to attract NRI investors, often because of emotional attachment or familiarity. However, experts caution against excessive concentration in property.

Garg pointed out that many NRIs end up locking too much wealth in illiquid assets. “Another common mistake is overinvesting in real estate out of nostalgia, ending up with 60-70% of wealth locked in illiquid property while skimping on liquid financial assets for actual goals like retirement or kids’ education.”

3. Chasing high-yield products without understanding taxation

NRIs are often offered high-return investment options during visits to India. However, these may not always be suitable from a global tax perspective.

“NRIs often chase high-yield FDs, ULIPs, or unregulated schemes pitched during India visits, overlooking how they’re taxed abroad,” Garg said.

4. Ignoring tax compliance and regulatory requirements

Tax compliance is another area where many NRIs face challenges. Missing documentation, incomplete declarations, or a lack of awareness about tax treaties can create avoidable problems.

George explained that regulatory obligations should not be overlooked. “A common pitfall is overlooking tax, TDS, and regulatory requirements applicable to NRIs, including timely FATCA and KYC declarations.”

He also highlights the importance of understanding tax treaties. “Limited awareness of DTAA benefits, reporting obligations, and incorrect account structuring can result in higher taxes, penalties, or transaction delays.”

5. Skipping documentation and estate planning

Administrative tasks such as updating KYC details or preparing estate documents are often delayed until they become urgent.

Garg notes that failing to plan ahead can create difficulties later. “Skipping KYC updates or estate planning like a simple will also turns routine transactions into ordeals.”

6. Align investments with future plans

Experts also recommend aligning investments with long-term residency plans and currency exposure.

If an NRI plans to retire abroad, it may be prudent to balance Indian investments with global assets to hedge currency risks. On the other hand, those planning to return to India may prefer a greater allocation to rupee-denominated investments while maintaining diversification.

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.