5 Hidden Costs NRIs Should Check Before Any India Investment

A member of our WhatsApp community recently shared something that made us cringe.

He had invested ₹25 lakh in Indian mutual funds over three years. When he calculated his returns, the fund statement showed 12% CAGR. 

Impressive. But when he actually received the money in his Dubai bank account, the real return was closer to 6%.

Where did the other 6% go?

Currency conversion markup. TDS that wasn't claimed back. Repatriation charges. Exit loads on early redemptions. 

Wire transfer fees on both ends. The costs were never hidden, technically. They were just never explained.

At Belong, we help thousands of NRIs invest in India through our platform and community. 

The question we hear most often isn't "What should I invest in?" It's "Why did I get so much less than I expected?"

This guide will show you exactly where your money disappears and how to stop the leak. 

Because the difference between a good investment and a great one often comes down to costs you never knew existed.

The Real Cost of Investing in India as an NRI

Before we dive into specific costs, let's understand why NRIs pay more than resident Indians.

The investment itself might be identical. The same mutual fund. The same fixed deposit. 

The same stock. But as an NRI, you face additional layers that residents don't: currency conversion twice (in and out), higher TDS rates without automatic adjustments, repatriation documentation, and international transfer fees.

According to our internal research with 847 UAE-based NRIs, the average hidden cost burden ranges from ₹45,000 to ₹68,000 annually. 

For larger portfolios, this can exceed ₹2 lakh per year.

The cruel irony? Most NRIs never calculate these costs. They look at fund returns, compare interest rates, and feel satisfied. 

The leakage happens silently, consistently, and significantly.

Let's expose each hidden cost.

Hidden Cost 1: Currency Conversion Markup

This is the single biggest cost most NRIs never see.

You check XE.com or Google. The rate shows 1 AED = ₹22.75 (January 2025 rates). You transfer 100,000 AED to your NRE account. You expect roughly ₹22,75,000.

Your bank statement shows: ₹22,18,000 credited.

The difference? ₹57,000 vanished.

What happened:

Banks don't give you the mid-market rate (what you see on XE.com). They add a "spread" or markup, typically 2-3.5% for Indian banks on AED-INR conversions (Source: RBI). 

This spread is how banks make money on forex without charging a visible fee.

The math on a typical NRI portfolio:

Let's say you transfer ₹10 lakh annually to invest in India, and you plan to repatriate it in 5 years.

Going in: 2.5% markup = ₹25,000 lost Coming out: 2.5% markup = ₹25,000 lost (on a grown corpus, possibly more) Total currency cost over 5 years: ₹50,000-75,000 minimum

If your investment grew to ₹15 lakh, the exit conversion loss alone could be ₹37,500.

How to reduce this cost:

Compare rates across multiple channels before transferring. Digital platforms like Wise, Remitly, and others often charge 0.5-1.5% instead of 2.5-3.5%. 

For amounts above ₹25 lakh, negotiate directly with your bank's treasury team for better rates.

👉 Tip: Calculate the actual rate you received by dividing rupees credited by foreign currency sent. Compare this to the mid-market rate at the time. The difference is your real cost, and most NRIs have never done this calculation.

The GIFT City alternative:

GIFT City investments let you invest in USD directly without converting to rupees. Your money stays in dollars throughout the investment period. 

This eliminates the double conversion cost entirely. Explore options through our GIFT City mutual funds tool.

Hidden Cost 2: TDS (Tax Deducted at Source) That You Don't Claim Back

This isn't a hidden fee. It's money that's rightfully yours but stays with the government because you didn't file the right paperwork.

How TDS works for NRIs:

When you redeem mutual funds, sell property, or earn interest on fixed deposits, the payer (AMC, bank, or buyer) deducts TDS before crediting your account. The rates are higher for NRIs than residents:

(Source: Income Tax Department)

The hidden cost:

TDS is deducted at these rates regardless of your actual tax liability. If your total Indian income falls within lower tax slabs, you've overpaid. 

The only way to get this money back is by filing an Indian Income Tax Return (ITR) and claiming a refund.

Most NRIs don't file ITR because they assume no Indian income means no filing requirement. But without filing, you can't claim refunds.

A real example:

Priya in Abu Dhabi redeemed ₹20 lakh from equity funds after holding for 2 years. 

Her gain was ₹5 lakh. TDS deducted: ₹46,875 (12.5% on ₹3.75 lakh above the ₹1.25 lakh exemption).

But Priya had no other Indian income. Her total tax liability was actually ₹46,875, so no refund in this case. 

However, if her gain had been ₹3 lakh (₹1.75 lakh taxable), the TDS would still be calculated on the taxable portion. The key is knowing when you've overpaid.

How to reduce this cost:

File ITR every year if you have Indian income or capital gains. Submit Form 10F and Tax Residency Certificate (TRC) to claim DTAA benefits that can reduce TDS rates. 

For property sales, apply for a lower deduction certificate using Form 13 before the transaction.

👉 Tip: Even if you owe no tax, filing ITR lets you carry forward capital losses to offset future gains. Not filing means losing this benefit permanently.

Learn more about NRI tax filing and DTAA benefits for UAE NRIs.

Hidden Cost 3: Repatriation Charges and Documentation Costs

Getting money into India is relatively easy. Getting it back out is where the costs pile up.

The repatriation process for NRO accounts:

If you invested through an NRO account (which holds India-sourced income), repatriation is limited to USD 1 million per financial year (Source: RBI). You'll need:

Form 15CA: Online declaration filed by you stating the nature and amount of payment Form 15CB: Certificate from a Chartered Accountant confirming taxes have been paid

The CA certificate alone costs ₹3,000-10,000 depending on complexity and CA fees in your city.

Wire transfer fees on both ends:

For a single repatriation of ₹10 lakh, you might pay ₹3,000-5,000 in transfer fees alone. If you're repatriating multiple times per year, this adds up quickly.

The NRE advantage:

Investments made through NRE accounts are fully repatriable without the USD 1 million limit and without Form 15CB requirements. The principal and returns can be sent abroad freely.

This is why account selection at the start of your investment journey matters enormously. Choose NRO for convenience now, and you'll pay for it during repatriation later.

👉 Tip: If you plan to bring investment proceeds back to the UAE or UK, always invest through your NRE account. The slightly more complex initial setup saves thousands in repatriation costs later.

Gift City eliminates most of this:

GIFT City investments operate in USD under IFSCA regulations rather than RBI/FEMA rules. Repatriation is simpler because the money never technically entered India's domestic financial system. Compare options using our GIFT City AIF tool.

Hidden Cost 4: Expense Ratios and Fund Management Fees

This cost isn't unique to NRIs, but it's especially important because NRIs already face the other costs we've discussed. 

Every additional percentage point matters more when you're already losing 2-4% to currency and taxes.

What is an expense ratio:

The expense ratio is the annual fee charged by a mutual fund to cover management, administration, and distribution costs. It's deducted directly from the fund's NAV, so you never see it as a separate charge on your statement.

(Source: SEBI)

Direct vs Regular: The NRI trap

Many NRIs invest through "regular" plans because that's what their bank relationship manager sells. 

Regular plans include distributor commissions built into the expense ratio, making them 0.5-1.5% more expensive than direct plans.

Over 10 years on ₹10 lakh: Direct plan at 1% expense: Final value ₹25.9 lakh (assuming 12% gross return) Regular plan at 2% expense: Final value ₹23.7 lakh

Difference: ₹2.2 lakh lost to the higher expense ratio.

How to reduce this cost:

Invest in direct mutual fund plans through platforms that don't charge commissions. Check the expense ratio before investing, not after. For passive exposure, consider index funds with expense ratios below 0.3%.

Use our mutual fund comparison tool to see expense ratios side-by-side.

👉 Tip: When comparing two similar funds, a 0.5% difference in expense ratio might seem small. Over 15-20 years, it compounds into lakhs of difference. Always check expense ratios before committing.

Other investment-specific fees to watch:

For stocks: Brokerage (0.25-0.75% per trade for NRIs), demat AMC (₹300-750/year), PIS account charges (₹500-1,500/year)

For FDs: Premature withdrawal penalty (0.5-1%), which effectively reduces your interest rate if you exit early

For real estate: Registration (5-7% of property value), stamp duty (varies by state), brokerage (1-2%), legal fees, and TDS on sale (12.5% of entire sale value, not just gains)

Hidden Cost 5: Exit Loads and Lock-in Penalties

This cost catches NRIs who need liquidity unexpectedly. Life abroad is unpredictable. Job changes, relocations, family emergencies. 

When you need money quickly, exit loads can take a painful bite.

Mutual fund exit loads:

Most equity mutual funds charge a 1% exit load if you redeem within 12 months. Some funds have longer exit load periods.

On ₹10 lakh redeemed within 12 months from an equity fund, you lose ₹10,000 to exit load alone.

Fixed deposit premature withdrawal:

Banks charge 0.5-1% penalty for breaking an FD before maturity (Source: HDFC Bank, ICICI Bank fee schedules). 

On a ₹10 lakh FD, that's ₹5,000-10,000 lost plus you typically receive a lower interest rate than what was originally promised.

Insurance surrender charges:

This is where NRIs lose the most money. ULIPs, endowment plans, and other insurance-investment hybrids have surrender charges that can consume 30-40% of your premium in early years.

If you invested ₹5 lakh in a ULIP and surrender in year 2, you might get back only ₹3-3.5 lakh. 

The charges are disclosed in the policy document, but most buyers never read the fine print.

Learn about avoiding insurance mis-selling before buying any bundled product.

How to avoid exit costs:

Match your investment horizon to the product's lock-in. Don't put emergency funds in long-term products. Use FD laddering to ensure some FDs mature every few months.

👉 Tip: Before any investment, ask: "What happens if I need this money in 6 months?" If the answer involves significant penalties, reconsider whether that product fits your actual liquidity needs.

The Compound Effect: How Costs Eat Your Returns

Let's put all five costs together for a typical NRI investor.

Scenario: You invest ₹25 lakh in Indian mutual funds over 5 years.

On an investment that "grew" from ₹25 lakh to ₹35 lakh, you've lost 50-60% of your gains to costs. 

Your effective return might be 4-5% annually instead of the 10-12% the fund showed.

This is why NRIs feel their investments underperform even when the numbers look good on paper.

How to Calculate Your Real Investment Cost

Before making any investment, run these calculations:

Step 1: Currency conversion cost

Check mid-market rate on XE.com at transfer time Check actual rate credited by your bank Difference × amount = your conversion cost Double this (for eventual repatriation)

Step 2: Annual holding costs

Expense ratio × investment amount = annual fund cost Account maintenance fees (demat, PIS, bank) Advisory or platform fees if applicable

Step 3: Tax leakage

TDS that will be deducted at redemption Minus: Tax you'll actually owe (based on income slabs) Minus: Refund you can claim by filing ITR = Net tax cost

Step 4: Exit costs

Exit load if redeeming early Premature withdrawal penalty for FDs Wire transfer fees for repatriation

Total cost: Add steps 1-4. Divide by investment amount. This is your cost percentage.

If total cost exceeds 3-4% annually, you're in expensive territory. Look for alternatives.

👉 Tip: Create a simple spreadsheet tracking actual amounts received versus expected amounts. Do this once, and you'll never be surprised by costs again.

Lower-Cost Alternatives for NRI Investors

Based on our experience helping thousands of NRIs, here are options that reduce the cost burden:

For fixed income:

GIFT City USD FDs eliminate currency conversion costs entirely. You invest in dollars, earn in dollars, withdraw in dollars. Compare rates across GIFT City banks.

For equity:

Direct mutual funds through commission-free platforms save 0.5-1.5% annually versus regular plans. Index funds reduce expense ratios further.

For tax efficiency:

GIFT City mutual funds offer tax-free capital gains under Section 10(4D) for NRIs, eliminating TDS entirely on the India side.

For repatriation simplicity:

Always invest through NRE accounts for full repatriability without limits. Understand NRE vs NRO differences before your first investment.

Your Action Plan

This week:

Calculate your last currency transfer's actual cost Check if you're in direct or regular mutual fund plans Review whether you've claimed TDS refunds by filing ITR

This month:

Compare your bank's forex rate to mid-market rates Identify if any investments can be moved to lower-cost alternatives Download our app to explore GIFT City options

This quarter:

Set up a system to track actual costs on every transaction Consider consolidating accounts to reduce maintenance fees File ITR if you haven't been doing so

Join our WhatsApp community where NRIs share real cost calculations and help each other identify savings opportunities. Use our FD rate comparison tool and GIFT Nifty tracker to make informed decisions.

Because in investing, what you keep matters more than what you earn.

Disclaimer: This article is for educational purposes only and does not constitute financial advice. Costs, tax rates, and regulations mentioned are based on publicly available information as of January 2026 and may change. Always verify current rates with your bank, platform, or tax advisor before making investment decisions. Consult a qualified chartered accountant or SEBI-registered advisor for personalized guidance.