The young financial analyst bought these properties with his savings from salary and a loan that he has already repaid. Sonthalia’s net worth runs into several crores of rupees, including liquid savings of about ₹1 crore, in all of five years of his career.
Here’s what made this possible. Sonthalia works in Amsterdam and earns in euros and has benefited immensely from the conversion of his earnings in a higher-valued currency to Indian rupees.
“I save about 50% of my salary and remit it to India. After converting, the amount comes to ₹2.5 lakh-3 lakh. Initially, I used to get ecstatic looking at the absolute rupee amount, thinking how long it would take me to save this much working in India,” said Sonthalia.
But why invest entirely in India? He says he was always clear that he would eventually return and hence, wanted to build wealth here.
Sonthalia represents a cohort of young Indian professionals working abroad who get a financial headstart early in their lives by earning and saving in stronger currencies than the rupee. Of course, the benefit of the exchange rate becomes tangible only if these professionals return to India or encash their dollar or euro savings into rupees for big-ticket spends.
While this financial advantage helps some build a substantial rupee-based net worth quickly, for others it helps fulfil major financial goals early, without taking on the burden of loans.
Swiss savings
Take the case of Nikhil Nainani, who used savings accumulated during his 3.5-year stint in Switzerland to buy his parents a bigger apartment in Mumbai. Nainani also bought a house in Dubai, where he and his wife Sushma Reddy live after having moved from Switzerland. Both the properties are mortgage-free.
“I moved to Switzerland after working five years in India. I used savings from my previous jobs too, but the contribution would be 70% Swiss franc and 30%-rupee savings,” he said. “What also helped was that the move to Switzerland coincided with progression into higher roles, which also meant higher salaries. That said, if I continued to work in India, even with career progression, our net worth would’ve perhaps been one-third of what we’ve been able to save.”
His remaining liquid savings are in US stocks and fixed deposits in India, which are earmarked as an emergency kitty in India.
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Back in Roorkee, 39-year-old Abhinav Gupta has accumulated a sizable fund after working for 12 years in the US to comfortably fund his five-year-old daughter’s education abroad or buy a dream house in India. Gupta moved back to India this year to be close to his family.
“My rupee salary is lower after moving back, but I’m not concerned as my dollar-based savings are enough to cover most of my major future financial goals,” said Gupta, who is a senior engineering manager in a multinational company.
Higher absolute savings
The cost of living in most western countries is higher than in India after adjusting for purchase price parity (PPP), a metric used to compare economic productivity and standards of living between countries. This may translate into lower savings as a percentage of income for most in comparison to working in India, but the absolute savings in rupees still work out higher after conversion.
Switzerland, where Nainani moved from Bangalore, is among the most expensive countries in the world.
“Living expenses were about 25% higher on a monthly basis compared to Bangalore. But it didn’t impact our saving capacity as higher income and lower taxes made up for the higher living costs,” he said.
This is the true benefit of the exchange rate that non-resident Indians get. All NRIsMintspoke to admitted they would have not reached where they are currently if it wasn’t for this advantage.
“I’m moving back to India next year with a job offer that’s a major leap in my career, but the absolute value of my monthly savings will be much lower now. However, I’m not bothered as I have a decent corpus already. If I had taken up a job in India soon after college, I would have been sitting on EMIs right now,” said Sonthalia.
Moreover, although living costs are lower, most say that high taxes in India eat into earnings.
“In India, taxation is very high, but the salaries are not that high compared to the US. For example, my blended tax rate in the US never crossed 30% because the tax slabs are relatively broad, especially if you are doing tax filing as a family. While in India, it can easily cross the 30% tax bracket,” said Gupta.
Depreciating rupee
Depreciation of the rupee has always been a boon for NRIs interested in investing in India as they get more value for their foreign currency earnings. Sonthalia points out that in his four years of working in Europe, the value of the Indian currency went from 80 rupees per euro to 92, which worked very well in his favour.
Some young professionals spend their peak earning years abroad with the intention of eventually returning to India with their dollar or pound savings, which enables them to lead a comfortable life here. Raveen Vishnu, who spent 10 years working across the UAE, Kuwait and Saudi Arabia, is one such example.
“I chose to study a field that would enable me to move to the Middle East. In the oil and gas industry, salaries are usually decided in dollars and the equivalent in the local currency is paid. Salaries start at $4,000, irrespective of location in the world, and you get the added advantage of zero income tax in the Middle East,” said the 33-year-old, who is a geoscience team leader.
A combination of higher salaries, depreciating rupee and zero tax helped Vishnu build significant wealth.
“I’m very close to achieving my FIRE (financially independent, retire early) goal and plan to return to India for good in two years,” he said.
The flipside to rupee depreciation is that savings in the Indian currency can lose value over time. For this reason, many NRIs park some of their savings in the country where they previously worked even after returning to India. Gupta is not repatriating his US savings.
“I won’t liquidate dollar savings until I need it for a major expense. My daughter is a US citizen, so I might need the money if she decides to pursue her education there,” he said.
Financial advisors too have increasingly started asking resident investors to diversify their investments globally to contain the risk of the rupee losing value.
“The rupee has depreciated at 4-5% each year since liberalisation. Global diversification becomes more important for someone planning to spend a significant amount in foreign currency in the future, like funding a child’s foreign education or settling abroad or those with business interests outside India,” said Sumit Duseja, co-founder and CEO of Truemind Capital.