Investing in NRE Fixed Deposits 2014

By: Narendra Pratap

Key Features of NRE Fixed Deposits

Fixed term deposit account for NRIs

Pre-determined interest rate

Tax-free returns

Easy repatriability of principal and interest on maturity

Account held in rupees (foreign currency converted to rupees on opening the FD and reconverted to foreign currency on repatriation)

Short to Long-term tenors

Joint account possible with another NRI

Minimum period of investment is one year i.e. no interest will be paid in case of pre-mature withdrawal before completing one year

Pre-mature withdrawal after one year is allowed with interest payable for the actual period of holding with the bank

Nomination facility

Some banks offer loans up to 90% against NRE FDs

Are NRE Fixed Deposits a good option for Non-Resident Indians (NRIs)?

Favourable exchange rates

High interest rates

Positive macroeconomic outlook

Tax-free returns

Long tenors

Ease of application and management

Yes, given the current economic scenario

Favourable exchange rates

The weakening of the rupee has proven beneficial to NRIs who wish to transfer money back to India.

High exchange rates on conversion to rupees means surplus funds for investment or saving.

High interest rates

Banks trying to draw more foreign currency into India are currently offering high interest rates on NRI deposits.

Interest rates in India are considered to be peaking with a decline expected in the near future with easing inflation.

Locking-in funds at present rates for a long-term will earn NRI investors attractive returns.

Current rates are as high as 9.30%

Positive macroeconomic outlook

Interest rates are likely to decline making fixed deposits a less attractive option in future for long-term holdings; especially for those looking at relatively risk-free, fixed-income investment options.

With an expected strengthening of the rupee, a favourable exchange rate on repatriation will prove profitable.

By opting for a quarterly pay-out of interest on NRE FDs investors, with a fair risk-appetite, can re-invest in the equity market either directly or through mutual funds. A NRIs investment portfolio can gain from including an equity component given bullish expectations in this space.

India’s economy is set for revival in the coming years.

Tax-free returns

Interest earned on NRE FDs are tax-free in India and the principal and interest accrued is freely repatriable.

Long tenors NRE FDs are currently offered for terms ranging

between 1 year and 10 years. NRIs can opt for the most suitable tenor.

Ease of application and management

NRE FD accounts can be opened online, within a matter of days of sending scanned documents.

FDs are also easy for NRIs to manage since they are transparent and don’t require to be monitored physically as with real estate or tracked as with equity markets.

They are comparatively one of the easiest asset-classes to understand with simple calculations.