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 the 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 an 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 the 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 an NRO account?
NRO bank account is an ordinary saving bank account opened for Non-resident Indians. This is why it is known as the Non-Resident Ordinary account. You open an NRO account when you want to transfer money from your overseas bank account to an Indian account in Indian Rupees. The money lying in the NRO account cannot be taken outside the country or in other words, the money lying in the NRO account isn’t repatriable. This is can be in form of Fixed Deposit accounts also (compare rates)
What is an 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 remitting funds from abroad.
Comparison of Table
| Criteria |
MORE |
NRO | FCNR |
| Account type |
Saving , Current or Fixed Deposits account |
Saving , Current or Fixed Deposits account |
Fixed Deposit only |
| Money maintained in which currency | Rupees |
Rupees |
Any of U.S. Dollar, Pound Sterling, Euro, Australian Dollar, Canadian Dollar |
| Repatriable (can money be taken outside the 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 separate form called NRI Questionnaire-Annexure II
NRI investment in Shares ?
Steps required by NRI’s to start trading in Stock Markets
- Apply for a PAN card (you can do it online.) You will get it within a week.
- Open an 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.)
- 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)
- 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.
- 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 the NRE/NRO/FCNR accounts. If they make payments from NRE/FCNR account, then it can be on a repatriable basis (They can take the profit and principal out of the 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.