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 What/Who is a Non-Resident Indian (NRI)?

A non-resident Indian (NRI) is an Indian citizen or a person of Indian origin who stays abroad for employment, business or vocation outside India, or stays abroad under circumstances indicating an uncertain duration.  This page is exclusively for NRI, who wants to know more about the for his/her investment in our country - INDIA.

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.

We are detailing the most important NRI investment options and we’ll focus on four things only – Basic Banking Accounts, Insurance, Mutual FundsandShares.  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.  

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.

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.

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 currency

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 fromabroad

NRI’s how have income source from both India as well as Abroad

NRI’s who dont want towant 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)
  • A seperate form called NRI Questionnaire-Annexure II has to be filled up.

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). 
  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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