Indian residents in the UAE should avoid these common investment mistakes

It is wise to hold assets in the Indian rupee and UAE dirham to hedge against currency fluctuations

Many Indian residents in the UAE send a large amount of their savings back home. Victor Besa / The National

For Indian residents in the UAE, the promise of tax-free income and a higher earning potential makes investing an exciting prospect. Yet, despite the opportunities available, many fall into the same financial traps, often without realising the long-term impact.

From currency risks to an over-reliance on familiar assets, these mistakes can significantly erode wealth. The good news? A few smart adjustments can make all the difference.

Traditional savings and investments

Many Indian residents instinctively send a large chunk of their savings back home, investing in fixed deposits, real estate, or mutual funds. It feels like the safest bet – after all, there’s comfort in familiarity.

But here’s the catch: the Indian rupee has consistently depreciated against the US dollar – and, by extension, the UAE dirham. On average, the rupee has lost about 2.7 per cent of its value annually against the dollar in the last decade.

That means an investment that seems profitable today might shrink in real value when converted back later. The key is to strike a balance – holding assets in both the rupee and dirham to hedge against currency fluctuations.

While these have historically been safe choices, they don’t necessarily offer the best returns or liquidity. What happens when the real estate market in India slows down or gold prices stagnate?

Many residents fail to explore the diverse options available in the UAE – stocks, bonds, real estate investment trusts and market-linked investment plans that can provide better growth and stability. A well-diversified portfolio tailored to long-term goals is the best way to protect and grow wealth.

Diverse investment options

Surprisingly, many Indian residents don’t take full advantage of the UAE’s financial ecosystem. The local market offers investment-linked insurance plans, structured products and equity funds that provide exposure to global markets while being dirham-denominated, thereby offering more stability.

For instance, unit-linked insurance plans serve a dual purpose by offering both life cover and long-term market-linked returns. Mutual funds designed for non-resident Indians can also provide diversification without the currency conversion costs associated with sending money to India.

Residents often overlook just how much exchange rates affect their financial future. While the dirham is pegged to the dollar, the rupee is prone to fluctuations. This means that, while an investment in India might show an 8 per cent to 10 per cent return on paper, the actual gains could be 5 per cent to 6 per cent lower when adjusted for currency depreciation and conversion costs.

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A smarter approach is to allocate a good portion of savings in dirham-based assets, ensuring a more predictable financial future.

The UAE’s investment landscape is dynamic and with that comes a fair share of high-risk opportunities. Cryptocurrencies, high-risk stocks and speculative investment schemes often promise exponential returns, luring residents eager to grow their money fast.

But history has shown that markets can be unforgiving. While these investments have their place, they should only form a small part of a well-rounded portfolio, balanced by stable, income-generating assets.

Long-term financial security

Another point to note is that investment planning isn’t just about growth, it’s also about security. Many of us either neglect insurance entirely or buy policies based on immediate affordability rather than long-term adequacy.

Life insurance, critical illness coverage and income protection are essential to protecting financial well-being. A well-planned insurance strategy ensures that unexpected issues such as poor health or job loss don’t derail carefully built wealth.

Avoiding these common pitfalls isn’t about drastic changes, it’s about being conscious about money. Diversifying investments, staying mindful of currency fluctuations and leveraging the financial opportunities available in the UAE can have a significant impact.

Seeking guidance from financial advisers, keeping an eye on global market trends and taking a long-term approach can help Indian residents to maximise their wealth while avoiding unnecessary risks.

At the end of the day, financial success is more about how wisely you invest and protect what you have.

Atul Kathuria is business head of term life insurance at Policybazaar.ae