Does an offshore investment trust make sense for resident Indians or NRIs?

Indian residents and NRIs with children settled outside India have always faced a very difficult dilemma when it comes to estate planning and leaving a legacy for their children. Very often, Indian residents who have worked all their working lives in India have their retirement assets in a Public Provident Fund or similar structures. Besides this, they typically have substantial cash savings in Bank accounts or investments in stock markets along with property all denominated in Indian rupees. Leaving such a legacy for children who are settled outside India and who have no intention of returning back to India only complicates problems for the children who have to sort out this mess and bribe their way through the Indian bureaucracy to claim what is rightfully theirs. You begin paying bribes starting with the death certificate - this phenomenon is quite wide spread throughout India with some crematorium officials in Mumbai asking as much as US$ 1000 in bribes.



These problems can best be avoided by setting up an offshore trust in a UK jurisdiction such as the Isle of Man or the Channel Islands in a hard currency of your choice. RBI now allows every Indian resident to transfer up to US$ 200,000 every calendar year through their Liberalised Remittance Scheme. This is a very effective mechanism for Indian residents to transfer their wealth abroad to leave a legacy for their children. NRIs returning back to India after a lifetime spent working overseas may also wish to leave a legacy for their children using this offshore investment trust mechanism to avoid taxes on transferring wealth to India.

Does it make sense to invest in Indian equities in the medium term?

On Jan. 2nd, 2013 the Bombay Stock Exchange index, the SENSEX started the year on a falsely optimistic note at 19714.24. On Apr. 1st, 2013 It began the second quarter a lot less optimistically closing at 18864.75 (down 4% so far). Live Mint today published a possible explanation for this malaise citing falling car sales, air passenger traffic numbers and disappointing rise in HSBC's Indian PMI numbers. As the article points out, all this negativity comes at a time of double digit inflation and massive current account deficits in India.

This begs the question, does it really make sense to invest in Indian equities in the short to medium term? This is where RBI's Liberalised Remittance scheme allows Indian residents to diversify their investment exposure by allowing investment up to US$ 200,000 each calendar year in overseas investment instruments. Given today's propensity among Indian residents to send children overseas for education or settlement, it makes complete sense to set up a trust or other investment structures in tax free jurisdictions overseas so that investors can take advantage of tax free wealth accumulation.