Rising interest rates in India offer a valuable opportunity for Non-Resident Indians (NRIs) to invest in Fixed Deposits in their home country. At present, with the Reserve Bank increasing policy rates to tame spiralling inflation, the deposit
rates offered by banks are likely to get more attractive. Also, thanks to the fall in Indian Rupee (INR), it allows you, as an NRI, to capitalise on the opportunity.
NRI Deposits are a safe and secure way to build wealth (if you take care to choose a bank with robust financial health). Here are four key benefits of investing in a Fixed Deposit (FD):
- The returns earned are fixed; there is no risk as in the case of market-linked instruments
- Can take care of liquidity needs and address short-term goals, provided the tenure is thoughtfully selected.
- Potentially counters inflation
- Compounds wealth
When capital markets are very volatile, it makes sense to allocate a portion of your investible surplus or portfolio to an FD.
Some popular fixed deposits for NRIs are:
1. Foreign Currency Non-Resident (FCNR) Deposit:
FCNR Deposit can be opened only in a freely convertible foreign currency. You have a choice of six currencies: US Dollar (USD), Great Britain Pound (GBP), Euro (EUR), Japanese
Yen (JPY), Australian Dollar (AUD), and Canadian Dollar (CAD) to book an FCNR Deposit. Key features include:
- May be opened for a minimum tenure of 1 year and a maximum of 5 years, in the form of a term deposit.
- The FCNR Deposit can be opened in a single or joint name by NRIs/PIOs or with resident Indians on a former or survivor basis.
- The interest on FCNR Deposit is paid based on 360 days to a year.
- The interest earned on the FCNR Deposit is fully exempt from tax, and both interest and the principal are freely repatriable.
- The withdrawals from the FCNR Deposit are permissible without penalty for individual deposits below USD 1 million.
- Allows transfer of money from the existing FCNR Account to an NRE or NRO Account.
To know more about the FCNR Deposit, click here.
2. NRE Rupee Deposit
As the name suggests, this deposit is rupee-denominated. Funds from the NRO Account cannot be used to create NRE Rupee Deposit. You can fund the NRE Rupee Deposit with any convertible currency received
from abroad. Axis Bank offers a competitive exchange rate while converting foreign currency to INR to open an NRE Rupee Deposit. Its features include:
- The NRE Rupee Deposit can be opened jointly with another NRI/PIO on a former or survivor basis, but a resident Indian is disallowed from joint holding.
- The funds held (in the NRE Deposit) may be transferred to the Resident Foreign Currency account, at the option of the account holder, immediately upon the return of the account holder to India for taking up employment or on change in the residential
status.
- The NRE Rupee Deposit is fully repatriable ––meaning, both the principal and interest earned can be transferred overseas.
- Partial withdrawals from the deposit are also permitted with NRE Savings Account.
- Premature encashment of the deposit is permitted in case you need all the funds. However, the interest will be paid only if the deposit is held for the minimum tenure of 12 months.
- The NRE Rupee Deposit comes with a tenure of 1 up to 10 years and at an attractive rate of interest.
- The interest earned on the NRE Rupee Deposit is not taxable in India.
To know more about the NRE Deposit, click here.
3. NRO Rupee Deposit
The NRO Rupee Deposit comes with a tenure of 7 days to 10 years. Based on the tenure you select, considering the financial goal you are addressing, and liquidity needs, the interest rate offered on NRO
Rupee Deposits is competitive. Other features include:
- But note that the interest earned is taxable as per your income-tax slab. That said, the interest earned during the current financial year is fully repatriable.
- The principal is subject to repatriation restrictions as per the FEMA guidelines. The balance in the NRO Account is remittable up to USD 1 million per financial year (along with the other eligible assets) for all bonafide purposes.
- Partial and premature withdrawal is allowed. But in the case of premature withdrawal, the interest will be paid only if the deposit is held for the minimum tenure of 7 days.
- An overdraft facility (of up to 85% of the deposit) is available.
- The NRO Rupee Deposit can be held jointly with another NRI/ PIO or a resident Indian on a former or survivor basis.
- When you, the NRI, relocate back to India permanently, the NRO account may be re-designated as a resident Rupee account.
To know more about the NRO Rupee Deposit, click here.
[Also Read: New to investing? Here’s why you should look at bank FDs]
4. NRI-Pro Rupee Deposit
The NRI-Pro Rupee Deposit offers an attractive interest rate. It is possible to earn a higher INR yield by locking in the conversion rate. Its major features include:
- The NRI-Pro Rupee Deposit may be opened in a single name, or jointly with another NRI/PIO or a resident Indian on a former or survivor basis.
- The interest earned on this fixed deposit is not taxable in India. Only on maturity, the earnings can be repatriated.
- Allows you to start with a minimum deposit of USD 10,000 and opt for a tenure ranging from 3 years to 5 years.
- Loan/overdraft against the fixed deposit/s is available, but not outside India.
- When you, the NRI relocates back to India permanently and there is a change in residential status before the maturity of deposits, if so desired you may be allowed to continue the investment till maturity at the contracted rate of interest.
To know more about the NRI Pro-Rupee Deposit, click here.
5. Recurring Deposits
Other than the above, if you are looking at investing regularly in a recurring deposit in a piecemeal manner
and not a lump sum, then you have the option to NRE Recurring Deposit and/or NRO Recurring Deposit. In these, you can deposit a minimum monthly instalment of Rs. 1,000 and in multiples of Rs. 500 thereafter. As regards their repatriation rules
and taxation is concerned, they are the same as discussed above for NRE Rupee Deposit and NRO Rupee Deposit.
A variety of options are available for you, an NRI, to park money in fixed deposits. All you need to do is make a wise choice considering your liquidity needs, the financial goal/s you want to address, the time horizon, and take cognisance of
the repatriation and tax rules. A sensible approach to investing in bank FD can result in a rewarding experience. Book your NRI Deposit with Axis Bank today!
Disclaimer: This article has been authored by PersonalFN, a Mumbai-based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
