Hello I am based in New Zealand and have current account with SBI NRE. I was pitched SBI smart privilege with most money invested in midcap fund with returns almost doubling in 5 years. I was thinking to invest 6 lakhs per year for next five years. However I am confused regarding transferring money once it matures, would I be liable for any taxation apart from capital gains tax in India? I have heard being New Zealand I would have to pay further tax on that income. So considering all is it worth it or not? Would appreciate your guidance.
Ans: The investment is a unit-linked insurance plan (ULIP) that allocates most of the money to midcap mutual funds.
The projected return is that the invested amount could double in five years.
You plan to invest Rs. 6L per year for five years, totaling Rs. 30L.
The plan is structured under your SBI NRE account, meaning the returns may be repatriable.
The key factors to evaluate include charges, expected returns, liquidity, taxation, and alternative options.
Charges and Cost Impact
ULIPs have multiple charges, including premium allocation, fund management, policy administration, and mortality charges.
Even if the fund generates high returns, these charges can significantly reduce your net returns.
Midcap mutual funds, when invested separately through a Certified Financial Planner (CFP), have lower costs than ULIPs.
Liquidity is limited, as ULIPs have a five-year lock-in period, restricting withdrawals.
If the expected returns are 15% CAGR, a direct investment in midcap mutual funds might offer better returns due to lower costs.
Taxation in India
As an NRI, capital gains from ULIPs may not be taxable in India if the annual premium does not exceed Rs. 2.5L.
If the premium exceeds Rs. 2.5L in a year, ULIP proceeds are subject to capital gains tax.
For traditional mutual funds, long-term capital gains (LTCG) above Rs. 1.25L are taxed at 12.5%.
Short-term capital gains (STCG) are taxed at 20%.
If this investment were in a mutual fund instead of a ULIP, the taxation rules above would apply.
Taxation in New Zealand
New Zealand taxes worldwide income, meaning you may have to pay additional tax on returns from this investment.
If the investment is classified under the Foreign Investment Fund (FIF) tax regime, taxation depends on the type of investment.
ULIPs may be classified as a life insurance product, which can have different tax treatments than mutual funds.
If you invest in mutual funds directly, taxation under New Zealand law will be applicable based on their classification.
You should consult a tax expert in New Zealand to determine the exact tax liability.
Repatriation of Funds
SBI NRE accounts allow full repatriation of both principal and returns.
If the investment is held under an NRO account, repatriation is restricted beyond Rs. 1 million per financial year.
If the funds are taxable in India, you may need to submit Form 15CA and 15CB for remittance.
The process of transferring the maturity proceeds should be planned based on repatriation rules.
Alternative Investment Options
Instead of ULIPs, direct investment in mutual funds through a CFP offers better flexibility and cost efficiency.
Actively managed midcap funds have historically delivered strong returns, but a diversified portfolio is better.
Investing through a Systematic Investment Plan (SIP) allows better risk management.
You can choose funds that align with your risk profile and liquidity needs.
Instead of investing Rs. 6L per year in ULIPs, investing in a mix of midcap, flexicap, and sectoral mutual funds may offer better long-term returns.
Final Assessment – Is It Worth It?
The investment has potential, but the structure and charges of ULIPs reduce its efficiency.
Taxation in both India and New Zealand must be considered, as it could lower net returns.
Mutual funds offer better flexibility, lower costs, and transparency.
Investing via a CFP ensures proper diversification and strategy.
Given these factors, reconsidering the investment strategy with mutual funds might be a more effective approach.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment