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Short NRI’s Guide to Banking , Insurance & Investments

by Manish Chauhan · 69 comments

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.

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{ 69 comments… read them below or add one }

1 Hemant Beniwal June 18, 2010 at 10:34 am

@ Manish

Article is very crisp.

“NRIs can invest in all Indian mutual funds, except in funds promoted by Asset Management Companies based in the U.S. ” This rule is different for every foreign AMC. I will share complete details for the benefit of all readers.

Reply

2 Hemant Beniwal June 18, 2010 at 10:52 am

List of Restricted Countries(AMC) for NRI Investments – Mutual Funds

http://www.slideshare.net/tflindia/restricted-countries-for-mutual-funds

Hope readers find it useful.

Reply

3 Manish Chauhan June 20, 2010 at 11:25 am

Thanks Hemant

Can you confirm if one can not invest in these AMC mutual funds if they are NRI ?

Manish

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4 Hemant Beniwal June 20, 2010 at 4:06 pm

@ Manish

Max. restrictions are for USA & Canada based NRIs.

ING is the only AMC which places restriction other than USA & Canada.

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5 Abhishek June 18, 2010 at 11:10 am

Thanks hemant, Does this link mean that NRIs cannot invest in these 12 MFs ?

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6 Manish Chauhan June 18, 2010 at 11:27 pm

Abhishek

Yes , i think so , mutual funds which are not pure Indian mutual funds have restrictions like those .

Manish

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7 Hemant Beniwal June 19, 2010 at 5:36 am

@ Abhishek

Above list is having 2 Columns AMC & Restricted Country.

Eg.
In case of FIDELITY: NRIs staying in US & Canada cannot invest but NRIs who are staying in other part of the world can invest.

In case of FRANKLIN: Restriction is only limited US based NRIs.

Hope it clarifies.

Reply

8 Manish Chauhan June 20, 2010 at 11:27 am

Hemant

The concerned person can always have money invested in these funds through his contacts in India . Its one of the workarounds . correct ?

Manish

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9 Hemant Beniwal June 20, 2010 at 3:57 pm

That way –

India is country of all possibilities. :)

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10 Anunay June 18, 2010 at 12:24 pm

Complete info given in a easy to understand and simple language.
I guess NRE account cant be opened jointly with resident indian and NRO account can be opened jointly with resident indian. Also cash in FCY can be deposited in NRE account upto the limit of 25000 USD per visit. Please check, I may be wrong

Reply

11 Hemant Beniwal June 19, 2010 at 6:05 am

@ Anunay

You are right “NRE account cant be opened jointly with resident indian and NRO account can be opened jointly with resident indian”.

But I don’t think there is any limit of Rs 25000 at the time of deposition.

Reply

12 Manish Chauhan June 20, 2010 at 11:54 am

Hemant/Anunay

yea .. there is no limit for NRE account , however there is a limit of $1 million for NRO account .

Manish

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13 Anunay June 23, 2010 at 11:19 am

Hi, the limit i mentioned is USD 25000or equivalent cash deposit per visit in NRE account. However there is no limit for deposit in NRE account through foreign remittance or cheque issued from other NRE account.

Reply

14 Manish Chauhan June 20, 2010 at 11:44 am

Anunay

oops .. My bad . I have corrected the mistake . Thanks for pointing out .

Manish

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15 Jeffrey June 18, 2010 at 2:48 pm

Terse and to the point. A very good article. I have been following this blog for a few weeks now and your articles are very good, no jargon and easy to follow. Keep up the good work!

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16 Manish Chauhan June 18, 2010 at 11:20 pm

Jeffrey

Thanks for comment :) Keep in touch

Manish

Reply

17 Sreekumar Menon June 18, 2010 at 10:39 pm

Nice Article as always.

Are there any special rules/restrictions for NRI’s in USA for trading in indian stock market.

Sree

Reply

18 Manish Chauhan June 20, 2010 at 12:25 pm

Sreekumar

Though I am not sure , however as far as I know , I dont think there is any restrictions per se.

Manish

Reply

19 Srinivas June 19, 2010 at 6:26 am

@Manish,

Very good piece of information. Keep it up.
However, the title Should be “NRI’s short guide to …..” instead of “Short NRI’s…….” :)

Reply

20 Manish Chauhan June 20, 2010 at 11:46 am

Srinivas

Thanks . I wanted to make sure the first word is “Short” , so that readers dont run away listening to “Guide” word :)

Manish

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21 Vivek September 27, 2010 at 8:36 am

Hi Manish,

AFAIK, NRIs/PIOs in the US cannot open demat accounts or trade directly in the indian secondary market for equities . This is due to regulations by US SEC and not due to indian regulation .

http://www.hdfcsec.com/Common/NRIDisclaimer.htm

Thanks .

— Vivek

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22 Manish Chauhan September 27, 2010 at 9:52 am

I didnt knew that . Thanks for the info :)

Manish

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23 विवेक रस्तोगी June 19, 2010 at 7:38 am

NRI, NRO & FCNR के बारे में बहुत ही अच्छी जानकारी।

Reply

24 Manish Chauhan June 20, 2010 at 12:20 pm

Thanks Vivek

Manish

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25 Ash June 19, 2010 at 10:36 am

Nice & brief article….Keep it coming and continue the good work!

Reply

26 Manish Chauhan June 20, 2010 at 11:46 am

Ash

Thanks , Are you an NRI ? Can you add more info in this ?

Manish

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27 Vidhya June 19, 2010 at 10:48 am

If I want to sell my property in India and expatriate the money, what are the options?

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28 Manish Chauhan June 20, 2010 at 12:20 pm

Vidhya

This can get complicated , will depend on when you bought it and all . Better consult with CA .

Manish

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29 yogesh June 19, 2010 at 11:36 am

Hi Manish ,

Good Article.

In NRE account is there any restriction also on total sum of balance.

Regards
Yogesh

Reply

30 Manish Chauhan June 20, 2010 at 11:55 am

Yogesh

No . there is no limit for NRE account , however there is a limit of $1 million for NRO account .

Manish

Reply

31 yogesh June 19, 2010 at 11:40 am

Hi Manish ,

Good Article.

In NRE account ,Is there any restriction on total sum of amount that can be kept ? Or can keep any sum of amount ?

Is doing FD benefitical in NRE account ? How much is the interest ? Any one had done this thing?

Regards
Yogesh

Reply

32 Manish Chauhan June 20, 2010 at 12:13 pm

Yogesh

There is no restriction in NRE account , you can open an FD in FCNR account .

Manish

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33 yogesh June 21, 2010 at 12:21 pm

So for this Do I need to open FCNR account too Or having NRE account is enough to open the FD.

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34 Manish Chauhan July 27, 2010 at 9:13 am

You can open NRE for FD , however FCNR is just for FD

Manish

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35 Finance Wizards June 21, 2010 at 3:35 pm

Gr8 post! Highly appreciate your writing skills. A very extensive piece of information is being shared in the above post. A must read for every NRI, who wishes to invest there money somehow.

Reply

36 Manish Chauhan June 21, 2010 at 5:02 pm

Thanks for your apprecitation , what other information do you think should should be present here ?

Manish

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37 iciciSucks August 4, 2010 at 10:54 am

Is the deposit rate fixed for NRE a/c?

Is there a way to earn higher interest in an NRE a/c?

Reply

38 Manish Chauhan August 4, 2010 at 7:08 pm

I dont think so :)

Manish

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39 iciciSucks August 9, 2010 at 7:39 am

So, let’s say I have an NRE a/c and uses funds from it to buy equities. After 1.5 years, I see the equities for a profit of Rs. 90,000.

Can the profit be deposited back into the NRE a/c?

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40 Manish Chauhan August 9, 2010 at 10:18 am

Yes

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41 Darshil Desai August 12, 2010 at 6:12 pm

Regarding NRI PIS account can anyone tell whether it is necessary to have PIS account and NRE account with same bank branch ?

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42 Manish Chauhan August 12, 2010 at 6:27 pm

Darshil

No , Its not mandatory . The banks Authorised to accept PIS applications are HDFC, UTI, ICICI Bank

If you have NRE account in these banks you can open the PIS account in the same bank if you wish

Manish

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43 Suresh November 14, 2010 at 9:33 pm

Hi,
I took the term insurance already 2 years back. but in coming jan i will move to USA for work assignment. Do i need to take any action steps regarding the insurance policies i have.

Reply

44 Manish Chauhan November 14, 2010 at 10:05 pm

Suresh

If you are going for a long period, better inform your insurance company about your moving to US

Manish

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45 Suresh November 16, 2010 at 8:54 am

Thanks Manish.
and i have one more question, i have few inestments in mutual funds.
and i don’t want to sell them now but i am moving to US for longer period. After some time if i want to sell them, can i sell them as NRI and how capital gains calculated?

Reply

46 Manish Chauhan November 16, 2010 at 10:13 am

Suresh

You can operate your old mutual funds buying and selling just like Indian from your demat account in india

Manish

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47 S.Navaneethan January 16, 2013 at 7:31 pm

Hi Manish,

I have worked in Kuwait for 3 months and return back to India. Is that I have earned money is Taxable in India.

Somebody saying I will be out of India 182 days why should i go out of India for 182 days?

Please clarify my doubt

Reply

48 Manish Chauhan January 18, 2013 at 10:15 am

Yes, it will be taxable in India if you have brought that money back in India

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49 Jeffrey November 15, 2010 at 4:18 am

Manish,
it would be good to give some information on what kind of accounts can foreigners have in India–specifically those who hold an OCI card (Overseas Citizenship of India). I guess they are treated like NRIs?

Reply

50 Manish Chauhan November 15, 2010 at 11:18 am

Jeffrey

I dont have much idea on that , can you ask on http://www.jagoinvestor.com/forum/ , You might get some info from there

Manish

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51 Sapan March 18, 2012 at 6:26 pm

how can i start investing in MF through NRE.. no information of how to invest in MF or do I need some1 from India to do on my behalf?? or I can operate from here only..

Thxs

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52 Manish Chauhan March 19, 2012 at 8:21 pm

Sapan

You can invest through NRE account, but the final amount you earn and maturity proceeds will be repatriable :) . No complexity in this .

Manish

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53 Kiran April 16, 2012 at 8:16 pm

I’m a US based NRI. I see that Indian banks are offering NRE FD 9.5% (Interest Cumulative quartely) for 10 years. Is it a good idea to invest in NRE FD or Mutual Funds or Stocks? In case of NRE FD the ROI is fixed and guaranteed but not the case in mutual funds and stocks. What do you suggest?

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54 Manish Chauhan April 17, 2012 at 12:10 pm

Kiran

If you are fine with 9.5% , then go ahead .. its totally dependent on what you beleive can happen in future and want to take risk for it . I personally feel , mutual funds should be good enough .

Manish

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55 prashant rathi May 15, 2012 at 4:45 pm

Hi Kiran
While a 9.5% does seem attractive but i would suggest that you need to factor in the inflation for the relevant period. A 10 year is a pretty decent time horizon and you should consider a diversified equity mutual fund for this horizon. Your real rate of return(returns adjusted for inflation) would be far higher in mutual funds than an FD.
Prashant Rathi

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56 Anant August 21, 2012 at 11:50 pm

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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57 Manish Chauhan August 22, 2012 at 6:48 pm

Anant

This will depend on the company providing health cover, it is upto their rules, have you tried with some company till now or not ?

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58 Mridul February 6, 2013 at 10:16 pm

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

Reply

59 Manish Chauhan February 8, 2013 at 8:16 am

Mridul

If the money sent is on repatriable basis then there is no income tax .

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60 Mridul February 8, 2013 at 10:12 pm

Thx Manish.
Can you pls answer my 2nd question?

Regards
Mridul

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61 DB DESAI February 9, 2013 at 9:59 am

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.

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62 Manish Chauhan February 11, 2013 at 5:43 pm

That will now be in seperate article

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63 Shaahul Hameed December 5, 2013 at 5:48 am

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.

Reply

64 Manish Chauhan December 12, 2013 at 3:11 pm

Yes, anyways the dividends will come to same account

Reply

65 jains December 17, 2013 at 7:06 pm

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?

Reply

66 Manish Chauhan December 18, 2013 at 3:33 pm

Thanks for mentioning those points , I know I have to updates these now .. will do that very soon

Reply

67 jimmyjose2980 April 9, 2014 at 12:56 am

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

=-=-=

Reply

68 Manish Chauhan April 10, 2014 at 12:51 pm

1. As per rules, I guess you should not do it , but people still do it as its ONLINE thing .. Choice is yours

2. Hmm .. I am not very clear on this ..

Reply

69 jimmyjose2980 April 14, 2014 at 10:15 am

Thanks Manish!

Reply

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