Short NRI’s Guide to Banking , Insurance & Investments

There are a huge number of Indians who are working abroad or will go abroad one day and work there. Even you might go out of country one day and become an NRI, so here’s a very short, to the point guide for NRI investments.

Today we discuss the most important NRI investment options and we’ll focus on four things – Basic Banking Accounts , Insurance , Mutual Funds and Shares. That’s all.  The rules and information here are basic, but further study can be very detailed. Let’s quickly look at some important concepts every person should know. Even if you are not an NRI, you can at least advice your other friends :) The first step every NRI should take, is to get the correct Banking accounts opened. Here are the options:

What is a NRE account?

NRE bank account is an external savings bank account opened for Non resident Indians and hence called Non-Resident External account. Any money lying in NRE account can be taken outside the country or in other words, the money lying in an NRE account is fully repatriable. This money can be converted into any foreign currency and can be remitted outside the country. For opening these accounts, the funds are required to be remitted to India through any bank from the country of residence of the prospective account holder. The accounts may be maintained in any form e.g. savings, current, recurring or fixed deposit account etc. (How to find best Fixed Deposits in India)

What is a NRO account?

NRO bank account is an ordinary saving bank account opened for Non resident Indians. This is why it is known as Non-Resident Ordinary account. You open an NRO account, when you want to transfer money from your overseas bank account to Indian account in Indian Rupees. The money lying in NRO account cannot be taken outside the  country or in other words, the money lying in NRO account isn’t repatriable. This is can be in form of Fixed Deposit accounts also (compare rates)

What is FCNR account ?

A FCNR account is a Fixed Deposit account with maturities of minimum 1 yr to maximum 5 yrs of tenure. FCNR stands for Foreign Currency Non-Resident (Bank) Account. The money in this account is always maintained in foreign currency, so it does not carry a currency risk (your $10,000 is always worth $10,000). The money lying in a FCNR account can be taken outside the country (or in other words, it is repatriable.)  Deposits in these accounts can be made by remiting funds from abroad.

Comparison Table


Criteria
NRE
NRO FCNR
Account type
Saving , Current or
Fixed Deposits account
Saving , Current or
Fixed Deposits account
  Fixed Deposit
only
Money maintained in which currenc Rupees
Rupees
Any of U.S. Dollar , Pound Sterling , Euro , Australian Dollar , Canadian Dollar
Repatriable
 (can money be taken outside country)
Yes
No
Yes
Money can be
Deposited from
From Abroad through Bank account
India or Abroad
From Abroad through Bank account
Tax
Exempt
Taxable
Exempt
Joint Account with Indian Residents
No
Yes
Yes
Suitable for
NRI’s whose income source is only from abroad NRI’s how have income source from both India as well as Abroad
NRI’s who dont want to want to take currency risk


Can NRI take Insurance ?

Yes, NRIs can buy Insurance in India; however they have to be present in India, while taking the Insurance. They should therefore plan for buying the insurance when they are on a trip to India. One important point, is that the premiums should be paid from NRE account, if the maturity value is to be repatriable, else only the partial amount will be repatriable,(for which premiums were paid from NRE account.) One has to make sure, they have all the necessary documents in place before they come to buy insurance.

Documents are

  • PAN Card
  • Income Address proof
  • Overseas Proof of Address
  • Proof of Income  (Salary slip, Bank Statement or ITR for last 3 yrs)
  • you will also have to fill a seperate form called NRI Questionnaire-Annexure II

NRI investment in  Shares ?

Steps required by NRI’s to start trading in Stock Markets

  1. Apply for a PAN card (you can do it online.) You will get it within a week.
  2. Open a NRE/NRO account. You will require this account to fund money for your stock market transactions. Make sure you choose the account carefully, depending on your requirement (Repatriable/Non-Repatriable basis etc.)
  3. Apply for a general approval for investment in Indian Stock Market through it’s designated bank branch, this is called PIS (Portfolio Investment Scheme) (PIS rules  in detail)
  4. Once you have a PAN card, you’ll have to open a Demat account with any bank or a brokerage firm – you will require this for trading.
  5. Finally, you need to have an online stock market trading account for investing in the stock market directly. Generally, you can get a combo Trading + Demat account at the same place.

Note that NRI’s are not allowed to do intra-day trading (can’t buy and sell on the same day)

NRI investment in Mutual Funds

NRIs can invest in all Indian mutual funds, except in funds promoted by Asset Management Companies based in the U.S. (Fidelity, Franklin Templeton and HSBC.) The payment can be made from any of NRE/NRO/FCNR accounts. If they make payments from NRE/FCNR account, then it can be on repatriable basis (They can take the profit and principal out of country.) But, if they make payment from NRO account then it will be on non-repatriable basis. However, the dividends can be on repatriated. No prior or extra permission, needs to be taken from RBI for this. This is allowed by default. There is no tax on dividend income, and long-term capital gains tax is zero in India, when investing in Indian equity mutual funds.

69 CommentsAdd Comment

  1. jimmyjose2980

    Hi Manish,

    1. Online Trading
    After moving out of India, I have not yet traded shares online (through ICICI Direct). As stated by you, one will require an NRE/NRO A/c to fund money for stock market transactions.

    I have an NRE A/c with BOI. Since I have not converted my ICICI SB A/c to an NRE A/c, can I still trade shares using ICICI Direct? These will only be long-term trading and not intra-day.

    2. Insurance
    The article states that the premiums should be paid from an NRE account, if the maturity value is to be repatriable. All insurances were bought before becoming an NRI.

    A]. Does this rule have any bearing on future payable premiums as payments are either made online through SB A/c or through ‘Standing Instructions’?
    B]. Does it affect the total maturity value if instructed to be credited in an SB A/c?

    Thanks,
    Jimmy

    =-=-=

  2. jains

    Couple of updates that are needed for this very informative article due to regulatory changes since original posting
    a) NRIs based in US & Canada are restricted from investing in most of the mutual fund AMCs. e.g. ICICI/HDFC/DSP/Reliance can’t be invested in. I don’t know what remains but definitely its a very limited option
    b) NRE was the only option to repatriate money abroad but not even NRO accounts are permitted upto $1M transfer annually provided a CA certifies that all indian taxes have been paid. Given that, its lot more convenient to continues investments in INR and do a repatriation once in a while. (the limits & frequency would work for most cases)
    c) for US specifically has long term capital gains of 15% even on stocks, while Indian taxation has NIL taxes. So its critical that you clean out all your long term stock holdings prior to becoming NRI when US regulations would start taxing all global income (where tax equal to US regulations i.e. 15% must be paid in India, failing which it needs to be paid in US)
    d) as per regulations banking accounts should be converted to NRO even before traveling abroad, however person becomes “NRI” only after 6 months. its not clear what is done with existing residence demat account holdings, fixed deposits etc in this interim period of 6 months?

  3. Shaahul Hameed

    Hi Manish,

    If NRE account is used to invest in Mutual Funds or shares, can we use the same NRE account to receive dividends from our investment.

    Thanks,
    Shaahul.

  4. DB DESAI

    NRIs major investment interest is real estate including agricultural land, residential properties, commercial properties, shops, offices, open plots, orchids etc. I hope you will please include this area in NRI investments and explain about eligibility, regulations, permissions, documentation, taxation, accounting, exchange rules and other issues related to real estate investments.

  5. Mridul

    Hi Manish,

    Hope you are doing well.

    I have 2 question for you.

    My 1st question is if some one send foreign money from abroad to his/her normal savings account in India then will it be consider it income (the account holder of savings account holder).I mean whether he/she is liable to pay income tax on that?

    As an example if he/she sends 5oooUSD in a financial year then whether the equivalent INR will be consider his/her income in India & he/she need to show this in his/her IT return or not?

    Or only interest portion of the equivalent INR of 5000USD will be consider as income & he/she liable to show that interest only in his/her IT return?

    My 2nd question is;
    If it is a NRO account & the interest earned in NRO account is liable to to 30% tax on that interest amount?Am I correct.?

    Regards
    Mridul

  6. Anant

    Hi Manish,
    Your website is really informative and what i like about it is its in simple language and easily understood! Keep up the good work.
    What i would like to ask you is:
    My wife is with OCI card as she holds foreign passport. Im with Indian passport. After marriage my wife has shifted here to India with me and working here with me in our institution for around 6 months. I would like to know is whether she can apply for Health insurance in India? Also she only holds NRO account as now she gets her pay from here in INR.
    Kindly enlighten me regarding this.
    Thx.

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