If you are an NRI & looking for a safe investment option in India, then you should consider investing in NRE Fixed Deposits .
RBI has de-regulated the interest rates on NRE fixed deposits and banks are now offering an interest rate of 8.5-10% p.a as against 2-4% earlier. Also, weaker Indian Rupee makes these deposits more attractive.
Benefits / Features of NRE Fixed Deposit (NRE FD)
- Attractive interest rates (between 8.5 – 10 % p.a)
- Lucrative exchange rates (if you want to convert USD/GBP etc to Indian Rupee)
- Tax free interest in India
- fully repatriable (both principal and interest earned can always be converted back to your foreign currency)
- 1-10 years tenor range
How to Open an NRE Fixed Deposit (NRE FD)
If you have an NRE Account, you can open a new Fixed Deposit online. Most of the banks like SBI, ICICI, Axis, Kotak etc. offer this facility.
If you don’t have an NRE Account, you can either
- Open an NRE Savings Account and then open a Fixed Deposit; or
- Open an NRE Fixed Deposit account only.
It is easy to open an NRE Account. You need to fill an Account opening form and send it alongwith a copy of your passport, current VISA and foreign address proof. If you need any help, normally there is an option to leave your contact details and then an NRI relationship manager will call you and help you in filling the form.
Some banks open the account within 1-2 days based on the scanned form & documents. You can then transfer the money & open the NRE Fixed Deposit. However, you need to send them the physical signed form & documents within 30-90 days.
Point to note about pre-mature withdrawal – Though pre-mature withdrawal of NRE Fixed deposit is permitted, there are certain conditions which you should know:
- No interest is paid, if any NRE term deposit is closed prematurely within a period of 12 months from the date of deposit.
- After completion of 1 year, the interest shall be paid only for the period for which the deposit is maintained with the bank and at the rate applicable for such period.
- Some banks charge a premature withdrawal penalty of 0.5%-1%.
- Interest earned on NRE Fixed Deposits is tax free in India.
- However, there may be tax liability in your home country (US / UK / Singapore/ Middle East etc.) For e.g., a US resident may have to add this interest to his total income in the US tax return and pay taxes thereon. For Gulf countries, where there is no personal tax, there may not be any tax liability.
Foreign Currency Risk / Gain
If you want to transfer money back to your home country on maturity, there will be a Foreign currency risk. It may be advantageous or disadvantageous depending on the exchange rate (The table below illustrates how the change in exchange rate impacts your returns). However, there is no impact if you will keep the money in India even after maturity.
From the table above, you can see that if the exchange rate is 45, you will earn a total return of 33%, but you will have a negative return if the exchange rate falls to 60. Many forex analysts believe that the INR should be in range of 48-50 by next year. But this is the risk you should consider if you are thinking to transfer the maturity amount back.
In current scenario of lucrative exchange rates and attractive interest rates, NRE Fixed Deposit (NRE FD) is one of the best options for NRIs to invest in India. Key points to consider are pre-mature withdrawal and taxation in your home country.