With FCNR rates regulated by RBI and volatile foreign currency market, a lot of banks have introduced and are marketing products for NRIs to generate more return on FCNR deposits. While there are catchy names used for the plans by various banks, like RupeeMax (HDFC Bank), Rupee Advantage Plan (Kotak), FCNB Premium Account (SBI), Smart Rupee Deposit Scheme (Union Bank), etc., the nature of investment is the same i.e. FCNR deposit with Forward Cover. It offers better returns than FCNR deposits, but whether NRIs should rush to invest in them?
Let’s analyze….
FCNR Deposit Accounts: NRI/PIO can open and invest in Foreign Currency Non-Resident (FCNR) Deposit Account in India. As the name suggests, only deposit account (No saving or current account) can be opened. The tenure of FCNR deposits are from 1 year to 5 years. As the minimum duration of FCNR FD is 1 year, no interest is payable for premature withdrawal before 1 year.
RBI has allowed FCNR deposits to be maintained in any freely convertible foreign exchange. Currently, SBI offers FCNR deposits in USD, EURO, GBP, CAN$, JPY, AUD, CHF, DKK, NZD and SEK. Most of all banks offer FCNR deposits in at least original 6 foreign currencies i.e. USD, EURO, GBP, CAN$, JPY and AUD.
The interest rates on FCNR deposits are regulated by RBI and are the same across all banks. Interest on FCNR deposits are also tax free in India and are fully repatriable. Zoloft Generic http://advicarehealth.com/zoloft.html
The biggest advantage is that there is no currency risk i.e. you invest in USD, you receive USD on maturity. The disadvantage is that its interest is regulated and is lower; e.g. interest on FCNR deposit in USD for 1-2 years is 2.70% only.
Forward Cover:
To address the disadvantage of lower interest on FCNR deposits and looking at volatile Rupee, the banks came up with forward cover to increase the yield on the FCNR deposits.
NRI/PIO will enter into a forward contract with the bank wherein investor will exchange foreign currency at a predetermined exchange rate on future date. The amount of foreign currency and date of forward exchange will coincide with the FCNR deposit to give investor a better return.
The forward contract locks in the Rupee Return on the deposit and future movements in currency markets cannot affect returns. While the forward contract protects the depositor from unfavorable movements in the exchange rate, investor won’t be able to take advantage of any favorable movements. For that, he will need to break the forward contract at a fee/penalty.
Result:
Combining FCNR deposits with Forward cover could increase the return (yield) from 2.70% to 8-9%.
Looks promising, Right?…….. Not so much because of following 5 reasons.
5 Reasons why FCNR deposit with forward cover may not be advisable:
Let’s analyze….
FCNR Deposit Accounts: NRI/PIO can open and invest in Foreign Currency Non-Resident (FCNR) Deposit Account in India. As the name suggests, only deposit account (No saving or current account) can be opened. The tenure of FCNR deposits are from 1 year to 5 years. As the minimum duration of FCNR FD is 1 year, no interest is payable for premature withdrawal before 1 year.
RBI has allowed FCNR deposits to be maintained in any freely convertible foreign exchange. Currently, SBI offers FCNR deposits in USD, EURO, GBP, CAN$, JPY, AUD, CHF, DKK, NZD and SEK. Most of all banks offer FCNR deposits in at least original 6 foreign currencies i.e. USD, EURO, GBP, CAN$, JPY and AUD.
The interest rates on FCNR deposits are regulated by RBI and are the same across all banks. Interest on FCNR deposits are also tax free in India and are fully repatriable. Zoloft Generic http://advicarehealth.com/zoloft.html
The biggest advantage is that there is no currency risk i.e. you invest in USD, you receive USD on maturity. The disadvantage is that its interest is regulated and is lower; e.g. interest on FCNR deposit in USD for 1-2 years is 2.70% only.
Forward Cover:
To address the disadvantage of lower interest on FCNR deposits and looking at volatile Rupee, the banks came up with forward cover to increase the yield on the FCNR deposits.
NRI/PIO will enter into a forward contract with the bank wherein investor will exchange foreign currency at a predetermined exchange rate on future date. The amount of foreign currency and date of forward exchange will coincide with the FCNR deposit to give investor a better return.
The forward contract locks in the Rupee Return on the deposit and future movements in currency markets cannot affect returns. While the forward contract protects the depositor from unfavorable movements in the exchange rate, investor won’t be able to take advantage of any favorable movements. For that, he will need to break the forward contract at a fee/penalty.
Result:
Combining FCNR deposits with Forward cover could increase the return (yield) from 2.70% to 8-9%.
Looks promising, Right?…….. Not so much because of following 5 reasons.
5 Reasons why FCNR deposit with forward cover may not be advisable:
- By entering the forward contract, your investment is subject to the currency risk as the money will be credited in the NRE account in Indian Rupees. And, it defeats the very purpose and benefit of having deposit in Foreign Currency.
- Currently, the interest rates on NRE deposits are equal to or better than the total return of FCNR deposits with forward cover. Levitra http://valleyofthesunpharmacy.com/levitra/
- If the foreign exchange rate turns favorable, you are still stuck with the forward rate. Otherwise, you have to pay fees or penalty to get out of the forward contract.
- NRE deposits can be made also for more than 5 years whereas FCNR deposits are for maximum of 5 years.
- Interest on NRE deposits is exempt from income tax in India. While interest on FCNR deposits are exempt from income tax in India, taxation of gain due to entering forward contract is debatable. That’s why, while comparing taxation between FCNR and Rupee Max (FCNR with forward contract), HDFC bank stated “tax exempt in entire deposit” and “-” respectively. Please check out my blog providing detailed analysis on taxation of such investment at “Are FCNR deposits with Forward Cover Completely Tax free for NRIs in India?
What to do?
This could be a great product for both investors and banks BEFORE December 16, 2011 when NRE interest rate was regulated giving return of 3.25%. However, it lost its value thereafter. Unfortunately, most of the banks introduced and/or marketing heavily such products only after December 16, 2011 (at a wrong time).
If you are ready to take the currency risk, please invest in NRE FD instead of FCNR deposits with forward cover. It will be easy, less paperwork, less worry (no monitoring of forex whether favorable or not), no complicated taxation and more rewarding (higher interest and no fees to get out of the contract).
However, if the return on FCNR deposits with forward cover is at least 1% higher than the return on NRE deposits, it may be explored by certain HNI investors. For others, it is simply not worth it as they still can get 9%+ return on NRE deposits (even after RBI reducing repo rate to 7.25% on May 3, 2013).
Dear Mr J Patel,
First of all, thanks for a nice and timely article on FCNR Forward contract (like HDFC Rupee max).
Most of the points are very true. I am a NRI and recently entered in to one such contract (before reading your article) with HDFC in RupeeMax, I would like to clarify on certain points.
HDFC assures, the entire proceeds (in INR) at the end of 5 years is TAX FREE. — Is that true or still not clear?
At present, a NRE FD for 5 years is fetching an interest of 8.75% to 9% (maximum); whereas the return on Rupeemax is 9.5% per annum (while I booked the deposit recently in JPY); the yield is 12.03%. Is that return is (comparitively) OK?
Please reply with your valuable inputs.
Thanks and regards,
Murali
Please get a written opinion from the HDFC bank, which I think, they would not provide. Please check my 2nd blog wherein I have discussed the taxation aspect of the FCNR FD with forward cover at http://nareshco.com/blog/?p=822. Thanks.
this is what i recd from one of the hdfc staff please advice………
**************
Dear Sir,
At HDFC Bank we constantly bring you the best investment ideas that are available in the market. One such interesting option is the arbitrage that is currently available between the NRE & FCNR deposit rates.
For example, if you want to book a NRE Deposit for 5-year duration, your deposit would earn a yield of 10.83% p.a.(*) under compounding option. However if you were to book a RupeeMax Deposit for 5-year duration, the return on your deposit can be significantly better.
The salient features of RupeeMax Deposit are:
· No capital risk as money is invested as FCNR Fixed Deposit
· No exchange rate risk involved as the exact maturity amount in Rupees is pre-fixed at the time of booking the Fixed Deposit
· Maturity amount is fully repatriable outside India
· Higher return as compared to NRE Fixed Deposit – earn 13.00% as against 10.83% for 5-year duration *
· Available in other tenures – 12, 24, 36, 48 & 60 months (yields are different for each tenor)
Tenure 36 Mo. 48 Mo. 60 Mo.
Net Yield in INR 11.29% 12.00% 13.00%
NRE Deposit rate (compounded ) 9.88% 10.34% 10.83%
(*) Rate/return will change depending upon the prevailing rates.
The above arbitrage opportunity is limited and may not be available at all times. So if you are planning to invest money this is the right time.
In order to explain the above option to you in detail I would request you to kindly let me know a suitable time for the same.
Assuring of the best at all times.
Thanks and Regards,
Dear Mr. Patel,
Now that the FCNR term deposit is offering higher rates of return (e.g. in USD for five years the rate of return is about 5.56%). Do you think it is advisable to go for FCNR than NRE in INR as the INR is devaluating very rapidly. I would appreciate your comments.
Regards,
Somnath.
Assuming you want your money back to USA in 5 years, if you think Rupee depreciation would be 4-5% or more per year (82-85+ in 5 yrs), have FD in FCNR. Else, invest in NRE. Your guess would be as good as anyone else’s. Good Luck…
The article says that the interest rates on FCNR deposits are regulated by RBI and are the same across all banks. Is it true? When I checked, ICICI is offering 5.77% on a five year deposit while SBI offers only 4.77%. I am writing to you for confirmation because, if the rates are the same, I already have an account with SBI and do not want to go through the formalities and delays of opening another account with ICICI etc. It seems odd that SBI’s rate is lower, unless being a government bank, SBI does not have to care too much about India’s economic woes. Either that or we will have to expect this from SBI because they, being a governmental institution, are entitled to be lethargic when it comes to updating their website with things like current interest rates and such. I called SBI New York branch to get an answer and they asked me to (quote) “call India” – they don’t even offer a number. ( Local calls to ICICI for NRI deposits, on the other hand, get transferred to their call center in India with trained helpful staff).
RBI regulates and provides the maximum limit of the rate of interest on FCNR deposits for various maturities. However, banks are free to offer any rate that is lower than such rate. The limit was increased on August 14, 2013. While SBI’s website would be recent, I think they may not be proactive to increase the rates. However, they will eventually have to give higher rate to be in the competition. Kotak just increased rate few days ago.
I think the another difference between SBI and ICICI is SBI allows you to break premature for 3-5 years whereas ICICI does not. May be that is the reason ICICI can give 1% more only SBI is different all others are same.
thank you for such a useful article.. so now kotak and other bank have increased their interest rate (from uk it is 5% ) is it worth investing money ?.. my agent told me that i would earn 13% interest if i invest for 5 years with kotak mahindra bank.. is my investment safe enough?
Please do not go through the agent but visit the bank directly. Please reread this blog and also read and understand the tax aspect of the investment at http://nareshco.com/blog/?p=822 and if you think is a good investment for you, please invest. You may contact me and I will provide the contact of the right person at the bank. Thanks.
I agree with you on the pain of handling SBI bank accounts. I’m in USA for a while and my Indian SBI account is virtually not operable. Multiple calls to customer care never yielded any good to me. But they are the safest and most trusted bank of India. I’ve a Savings Account with MOD facility which gives 8-9% of interest on my savings account. I guess no other bank in India offers such a high interest for Savings Account.
But if I’ve to open an FCNR deposit, I may not go to SBI. Its pain to get things done with them. They want us to go to native branch for many day to day operations. It’s close to impossible!! I’ll take a bit of pain required to open account with ICICI/CITI/HDFC or any other private bank who offer better customer support.
If you look at “Special FCNR(B)” instead of “FCNR(B)” account, then you can see the same rate as other banks. The difference being that the former is only available from 3-5 years and is only available for USD. Hope it helps!
Thank you for the wonderful article. The banks are really mis-selling product like it is Manna for heaven for NRI.
How safe are our deposits in FCNR FD accounts and how safe is the transaction during maturity? In USA, all banks are FDIC insured and hence, we do not have to worry about loosing our hard earned money. Lots of irregularities and change of policies do happen in India and hence, the trust in Indian Banking has lessened. I have NRI account in one of the Indian Bank that I do not operate time to time. Every time, when I have to make a transaction, Indian banks give me lots of headache such as asking the documents to be motorized, photos, copy of passport and make me go to bank back and forth numerous times. Anyone has any bad experience with FCNR FD upon maturity, Please share.
FCNR FD are as secured as any other FD that you put in banks in India. In India, there is insurance however the insurance is of only Rs.100,000. However, as the banks are regulated by RBI and have to maintain certain reserves, I would say nationalized banks are more secured than private banks as in nationalized banks, Indian government is a majority shareholder. Among private banks, I would consider biggest 5 banks – ICICI, HDFC, Axis, Kotak and Yes some more secure than others. I would NOT suggest to invest in any of the Co-operative banks in India. The banking experience depends on which bank you work with and how good is your contact/relation/liaison with bank. I think the experience of NRIs with regular FCNR deposis would be good. However, Leveraged FCNR FD is a new product and experience would be known only after 3 years. Thanks
dear mr. patel,
thanks for the valuable article. I differ form you on a few points.
1. the yield on CAGR basis is clearly about 1-1.3% p.a. higher than the NRE deposit rates assuming quarterly compounding which is a like-to-like correct comparison. I have just now booked with a CAGR p.a. rate of 11.4% with a Bank.
2. Yes, the ex. rate is anybody’s guess, I agree, time down the line, but assuming that an individual is very clear that he will be a ‘rupee-man’ say 5-yrs. down the lien or ultimately make India his destination, why should he worry about the ex. fluctuation, AFTER he enters into this product ?
To sum up, the perfect comparison of this product should be with the NRE deposits in Rupees and my observations are based primarily on that count.
Re. taxation, I am told that if one continues to remain an NRI, there will be no tax on maturity. I am not sure of tax aspects if ne becomes a resident thereafter.
Thanks
Chellamani
Dear Mr. Chellamani, Thanks for sharing your views. If 1-1.3% higher interest rate is enough for you to enter an agreemennt for FCNR and forward cover and take probable risk of depreciating rupee as well as taxation, you may please invest. However, I would request you to get a written opinion or response from the bank about the tax aspects. As mentioned in detail with income tax provisions in my blog “Are FCNR deposits with forward cover completely taxfree for NRIs in India” at http://nareshco.com/blog/?p=822, I still believe that it could be taxable to NRIs as well. For many 1% may not be enough to go into so much trouble. Thanks,
Mr.Patel,
I did not quite understand the first disadvantage you have quoted-
“By entering the forward contract, your investment is subject to the currency risk as the money will be credited in the NRE account in Indian Rupees. And, it defeats the very purpose and benefit of having deposit in Foreign Currency.”
If the currency risk still exists as you state, all banks would be basically lying about the product, wouldn’t they? The whole point of this type of deposit is so that the exchange rate is fixed. If the USD is converted at some rate, the assumption is on maturity, it will be converted back at the same rate.
Perhaps I am not understanding this. Would you please clarify?
Thanks.
Assuming your exchange rate is fixed, let’s say Rs. 80/USD; Now after 5 years, if 1 USD is 100 Rs., your FCNR deposit will be converted in INR at Rs. 80 only and not at 100. It is a forward contract and not an option contract where you have option whether to convert or not. If you want your money in USD after 5 years for any needs in your home country, you would convert the INR funds only at the spot rate (current exchange rate at that time) i.e. at 100 and may suffer loss – either in interest or in principal or both.
Had you kept your funds in USD as FCNR deposit, while you would get comparatively lower interest, you would get foreign currency (USD) on maturity and would not suffer any principal loss. As your funds are converted into INR on maturity and you have no option to keep them in USD, your funds has a currency risk. You already made your money by investing in 5 yr FD in India at 5% compared to 1% in USA. Whether you want to increase your return by additional 5% with currency and other risks as mentioned in the blog, I leave decision on to you. I hope this is helpful. Thanks.
ICICI quoted me nearly 2% difference from the mid exchange rate each way. So the loss is 4%. This should be kept in mind. So if you get 9% interest on FD -4% -fluctuation. You might end up with 2/3%. Not worth the trouble these banks give you. SBI is the worst case. They don’t take any written complaint even if you go to the Indian Ombudsman. Is ICICI in India answerable to Ombudsman ? Currently SBI is being investigated by UK Ombudsman for too many complaints for delaying the repatriation of its UK client’s funds. Their NRI section even in UK don’t seem to have proper training and seem to have got the jobs through influence. The NRIhead seem to hate NRIs by addressing NRIs as ‘these people’ ………… It has been suggested by many that UK NRIhead should be sacked for rude remarks and attitude to SBI UK NRI customers who have complained to UK Ombudsman.
You have to be very careful and understand all aspect of ANY investment product before you commit. You also have to keep in mind that banks are there to sell the investment products. It is YOU who needs to access whether it is good for YOU or not. A qualified experienced advisor is very helpful. Please invest only after consulting your advisor. Thanks.
Thank you for a good article. I invested in Rupee Advantage Plan of Kotak today and as per the calculations, I am getting 10.51% interest rate on my USD deposit. This is clearly more than NRE FDs for which I get 8- 9% Interest rate. I think I need not worry about the USD value after 5 years. If I keep the same amount in my foreign bank account for 5 yrs, I will not get anything more than 1% and in Indian bank, I will still get only 3-4% interest rate. If at all the USD rate crosses 100 mark in the next 5 yrs, I will benefit even if I do a premature withdrawal and pay the penalty. With Modi government, I dont think Rupee will collapse so much.
Anyways, Thanks for your advice in the last paragraph of the article.
You are very welcome. you got 2% spread over NRE FD. I appreciate that you liked our post and thanks for posting your comment.
The spread between the plain NRE Fixed deposits and the FCNR linked forwards is decided by the bank’s treasury. It depends on the commission/income that the bank want to gain on the deal.
Now my bank is giving a clear spread of about 2 % on the FCNR linked forwards.
The primary dis-advantage in the product apart from the taxability issue, is the liquidity part, which can be again addressed by extending a Over Draft on the underlying FCNR Deposit, but yes at a small cost.
Dear Mr. Patel,
Good Day..
I just need the best possible advice for 3 years in india. If I have to invest 30000$ .. what according to you would be the best return on the money if you were to invest.. what would you exactly do.
My recommendation would depend on your Risk profile. I would invest my money (in order of increasing risk tolerance) in FCNR Bank FD (No risk), NRE Bank FD, MIP Mutual funds (<20% equity), Balanced mutual funds(upto 35% debt), Equity mutual funds, Direct Equity, and Real Estate Plot/Land (highest risk). Please call or email if you want to learn more or invest in India. Thanks.
Dear Jigar,
I work in Abu Dhabi and a representative from state bank of hyderabad contacted me and advised to invest in SBH Rupee Max Gain Deposit for NRI (FCNR Forward). He also advised that if I deposit amount for 5 years (without breaking the funds) I will get around 14% flat on my total investment and this will be givein in writing on the certificate deposit. Appreciate your thoughts.
I doubt about 14% taxfree return as FCNR FD rates have gone down. However, if you are okay with currency risk (that INR may depreciate) and the bank gives a written agreement/guarantee for the 14%, I suggest you may invest as it is about 5% more than interest on NRE FD. Thanks.
Hi Jigar,
Can you plz share the details of the representative from SBH who offered this product to you as I am looking for soemthing similar for investment. Plz feel free to share the details on my personal mail id. I am currently in US. Many Thanks in advance. Best
Usually, the products are regional i.e. for Middle East and may not be for US residents. Also, I do not know the SBH representative, if Sid or anyone do post the information, I will be happy to pass it along. Thanks.
Hi Jigar,
Thanks for your reply
Sid: Can you plz pass on the information of the representatives and I can try reaching out to him. I understand these products are offered by region but no harm in trying. Best
As per IDBI website, “Proceeds received in Indian Rupees on maturity after application of Forward Foreign Exchange contract rate to be fully repatriable and tax free in India.”
Doesn’t this mean that returns are completely tax free?
It looks like that. The question is how much you trust the bank.
Hi Jigar,
I have a question on FCNR account. If I become resident while the FCNR deposit account is still active, is the interest earned on FCNR deposit is taxable after I become resident? Or is the interest on FCNR account is tax free till its maturity irrespective of whether my residential status is NOR or RI?
Interest on FCNR deposits are exempt for non-residents and not-ordinary residents (NOR). Assuming you have been out of India for long 8-10 years, your status would be not-ordinary resident for 2-3 years and you would enjoy the tax exemption of FCNR deposits. Interest taxable for Ordinary residents. Thanks.
Dear Mr Patel,
I have few questions in regards to NRI’s returning to India. I am planning to move to India next year around end of Feb/March, after staying in Australia for 12 yrs. I would like some clarification on the below questions.
1. Do I need to re-designate my NRE term deposits after I come to India or can I leave them until maturity? (Most of my deposits expire in 2019)
2. Is it OK to setup new FCNR(B)/NRE TD now to avail the tax ememption benefits before I return to India next year? If I can, can I go for long term deposits?
Thanks
Rajesh K
1. On your permanent return to India, as per FEMA, you need to transfer the funds to either Resident account or RFC (Resident Foreign Currency) account. Banks may have their internal procedures/policies so please contact the bank where you have FDs to know their policies about NRE FDs.
2. The maximum term of FCNR FD is 5 years. While you can invest in FCNR FDs, the interest would be taxfree only for 2 years i.e. until your resident status is “Not Ordinary Resident”. Also, the interest on FCNR deposit would be less about 2-3%. There are other investment avenues available that can generate higher tax free return. Let us know if you want some help about investments. Thanks.
Thanks. A very good article.
Hi
I was in search of reliable information and with appropriate example. Your given information is really useful to anyone who has no idea how to transact money safely to earn from the earn money.
If we want to keep ourselves updated with the latest changes where shall we look for?
Regards
Arun
Thanks for your comment. I will have your email in our directory and would send the information when there is any important update. Thanks.
Hi Jigar,
Can I request you to please add my email to your directory as well? I would also be interested in getting information as it become available.
Thanks
Vivek
Hi Jigar,
I have a large FCNR deposit but I have not used any forward cover to enhance the return.
Additionally I have some funds in Indian currency to invest as well.
I was wondering if I can call you to discuss my options.
Thanks
Vivek
I would love to be of your service. Please call on my cell at +91 90999 42563. Thanks.
Thanks you. Added.
Dear Mr. Patel:
I am a soon-to-be NRI and came across your article. Very informative: many thanks for bringing it to light.
I’m soon to be employed with a UAE registered firm, being paid in USD, but will be working in Iran (!). As you can expect, I would like to convert only the minimum amount required to Iranian Rials.
What would be the ideal way to go about it with minimum transaction losses? Greatful for your advice.
Best regards,
Kris
I suggest you open NRE account and transfer your salary from USD directly to NRE account in INR. Please contact us if you need more investment guidance. Thanks.
Hi Mr Jigar,
Your site is very informative, I appreciate your article and i personally agree on this article. By the way i am Manger for Vijaya Bank Based in Dubai UAE for providing NRI Service here. So I would like to leave my contact details for Visitors on this page as well as for you.
(Mostly i will be there in Dubai only upto Feb 2016)
Thank you.
Dear Jigar,
Need your advise regarding FCNR , i see the FCNR interest rate for private banks like City Union Bank, Dena bank are much higher than RBI goverened banks like Indian Bank, IOB even ICICI etc…But is it saafe to deposit in these banks ( City Union Bank, Dena Bank etc) just because the interest rate is high.?
While all banks are regulated. I would only put my money in top 5 private banks or top 10 nationalized banks. The interest rate difference would not be more than 1%. Thanks.
Dear Sir,
I am NRI and planning to deposit on FCNR (USD). I would like to use this fund for my son’s future abroad education. If I deposit on FCNR as USD, later is it possible to use the same account for transfer of fund outside India. (as you clearly saying it is only a deposit a/c)
Requesting your valuable answer.
Regards,
Saravanan
Yes. Balances in FCNR deposit accounts are freely repatriable. Thanks.
Dear Mr Patel,
Effective July 1, 2015, some banks like Bank of Maharashtra, City Union, Karnataka Bank, Vijaya bank etc are offerning FCNR interest rates >4.5% for 60 months term as comapred to less than 3.0% ofefred by ICICI, HDFC, Axis, SBI etc. for the same term. Why do you think thre is such a big difference. In your opinion, is it advisable to invest in these regional banks.
Competition and internal foreign exchange requirement of the bank. The RBI regulates the ceiling of FCNR rates. Banks are free to offer any rate upto RBI ceiling. I would only invest in top 10 nationalized or top 5 private banks.Thanks.
Hi Jigar, how are you, looking at your comments and advise seems that you have substantial knowledge and expertise in international investments, which is appreciated
i do have few question for you
1) I am thinking of diverting my Super funds from industry super funds to my Own SMSF (self managed super funds) and invest in India through either NRE deposits or FCNR deposits as will be moving to india for good from Australia
the following matters i need to clarification is as follows
1) if i invest my super funds in NRE account, will my Resident status (in india) effect the taxation of the returns earned by SMSF (established in Australia) will the interest earned will be tax free in india after few years (say 5 years)
2) Same question for FCNR account
Regards
Adnan CA(India) CPA
1. I am not sure about the Australian taxes. I would suggest you to contact your Australian CPA for the same.
2. If you are a resident, you are not allowed to open NRE and FCNR account.
3. I am not sure if you would be investing in your individual name or SMSF.
4. There are many options and ways to generate tax-free return on your investments. Please contact us if you have any question.Thanks.
Speak to you directly about my questions, any number or direct email?
Please check the “Contact Us” section. Thanks.
I am a NRI living in Australia and intend to stay here permanently.
I wish to maximise my return on investment in Australian dollars (not in INR) by investing in FCNR FD. Please let me know whether I can get my maturity amount (principal + Interest) from Bank at maturity in Australian dollars with no foreign exchange risks/fluctuations and no tax deducted at source.
Yes. However, the interest on A$ would be less – 3.3% compared to 7.75% on NRE where you would get money in INR. FCNR FD is advisable only if you expect INR to depreciate at 4.4%+ per year, i.e. more than Rs. 80/A$ after 5 years. If not, NRE FD would give you better return in A$. Please contact us if you need any help with investing in bank FD or other opportunities in India. Thanks.
So is this how it works
– Your Foreign currency deposit earns a low % (2-3%)
– at the end of tenure you get to convert that FC balance to INR at a rate higher than current rate 98-9% higher)
SP total yield goes up
But then when you want to bring the capital back to FC you are exposed to Xchange rate risk?
Also is this available for AUD?
Yes. It is how it works and you are correct that on maturity the amount would be exposed to the currency risk. Yes, FCNR FDs are also available in AUD. Thanks.
Hi Jigar,
1) I want to invest in FCNR (USD). As interest rates have come down in most of the Banks. So please advise me the Best option available currently.
2) Pls. inform me the Bank, which gives the maximum rate of interest. (As indicated by you, pls. advise from the top 5 private banks or top 10 nationalized banks. ). I want to invest around USD
3) Can I open my FCNR account without coming to India.
4) Are there any Banks, which are offering FCNR with forward cover now a days?
regards,
Parvinder
1. 2. the banks keep changing the interest rate so to know the latest rates, I would suggest you to contact the bank or search online about the highest interest given on FCNR deposits.
3.Yes. However, every bank has their internal procedures for opening bank account.
4. All banks offer such accounts. However, with reducing FCNR rates, I am not sure if it is beneficial for NRIs to go with FCNR FD with forward cover than opening NRE FD. Thanks.
Hi Jigar,
Very informative blog, thanks for writing it.
I am exploring FCNR deposit to generate better returns than FD.
I checked few banks for eg Yes Bank
Yes Bank FD rates are around 7.9 and on FCNR for JPY 5 years Gross Yield comes to 9.93
and some other 2nd tire bank like rblbank offer 11.3 for FCNR on JPY 5Years.
With rates on FD on lower side, it is worth investing in FCNR now ?
Thanks
Ashkrit
Make sure you do not compare apple with orange. Please ask the bank person to provide you a Quarterly Compounding Rate just like Bank FD. In aggressively marketing the product, they would just give you a annualized simple rate of return e.g. Invest Rs. 100 and receive Rs. 150 after 5 years would translate into 10% return (50%/2 years) i.e. Gross yield but would translate into 8.19% quarterly compounded return (like bank FD). I don’t think such huge spread (11.3% vs. 7.9%) is possible. Thanks.
Hi Jigar,
I have relocated to India for good in February 2016. In the financial year 2015-16, I was NRI. As I have no intention to go abroad again, I would like to declare the same to my bank that from 15 April 2016 I would be a resident Indian. Once declared, I understand that I can have RNOR (Resident but Not Ordinarily Resident) status from that day onwards. With this, for Income tax purpose, my NRE FDs can still enjoy the same status for a further period of 2 years till 31 March 2018 and the interest earned on them will not be taxed. Hence, with RNOR status, I have the following questions:
1) Can the existing NRE FDs that are in INR be converted to FCNR in USD with forward cover for a maximum period of 5 years from 1 April 2016 ?
2) Can the existing NRE FDs that are in INR be converted to FCNR in USD without forward cover a maximum period of 5 years from 1 April 2016 ?. ? My understanding in this case is that on maturity after 5 years, if I want to convert the matured USD amount to INR, the USD to INR conversion rate prevailing at that point of time will be applied ?
3) In the present conditions, is it advisable to convert the existing NRE FD that are in INR to FCNR in USD with or without forward cover
4) What is your opinion on government of India’s tax free bonds (for example Railway bonds) that typically give an yield of 7.5% when compared to the FCNR FDs with forward cover mentioned above ?
Thanks and regards
Vinay
1. On Return to India, NRE account needs to be closed and money can be transferred to Resident account or the RFC – Resident Foreign currency Accounts. The exemption of income on RNOR status is only for interest on FCNR accounts. While FEMA specifically mentions that FCNR FDs can be kept until maturity, there is not specific provision for NRE FDs. Certain banks allows keeping the FDs until maturity, while some banks would ask you to transfer funds immediately. NRE interest is exempt as long as you are allowed to maintain NRE accounts under FEMA. Residential status is not that important as only NRIs are allowed to maintain NRE accounts.
2. NRE funds can not be converted to FCNR accounts but can be transferred to RFC account as mentioned. The taxability of RFC and FCNR account is the same.
3. As you have moved to India in Feb, 2016, You are an Indian resident and not allowed to open/maintain NRO/NRE/FCNR accounts.
4. Every investment (including Government tax free bonds) have both pros and cons and 7.5% taxfree bonds may not be right investment for you. There are many investment options available to generate taxfree return in India. Please contact us if you are interested. Thanks.
Hi Jigar
Very informative article, I have a clarification
SBH is offering rupee max gain for NRE and when compared with FD’s the returns are as follows: please advise if its good to proceed with FCNR option
Deposit amount – 50 lacs
Interest rate – 7.95 option
Period – 3 years
Total return including interest- (Rs.6331889/-)
Deposit amount – 50 lacs
Interest rate – max rupee gain option
Period – 3 years
Total fixed return amount including interest – (Rs.6475000/-)
As return is only 8%, I would not recommend. Please contact us if you need investment guidance for better returns. Thanks.
thanks for the quick response jigar, but the max gain rupee option has 10% returns. See the second option of my message.
Deposit amount – 50 lacs
Interest rate – max rupee gain option
Period – 3 years
Total fixed return amount including interest – (Rs.6475000/-)
10% is simple average rate. The bank FDs rates are quarterly compounding rates. The quarterly compounding rate for your option is 8.71% only. Be aware of marketing gimmicks. Thanks.
Dear Mr. Patel,
If we are investing in FCNR with forward cover in Euro wich is currently offering yoeld of aroun 11.5% for 5 year . In current secnario of britexit if other countries choose to exit euro zone during this 5 year and if euro zone is dismental what hapens to the investment in euro .is the investment wiped out or any other case may be.
Your advise and direction on this matter is higly appreciated .
Thanks
Abbas
I think as long as Germany, France and Italy want to stay in Euro, I don’t see it being dismentaled. However, there is a risk and unfortunately, there is no right answer. If these three major countries exit, there won’t be eurozone and may not be euro so you would be taking a lot of risk in investing in Euro. However, as you would be entering the forward contract, you will be getting INR at the end of the contract so you may be okay. However, to honor the forward contract, you promise to give Euro at the end of the FD term and if you can’t there is no contract to get the money in INR. It is a tricky situation. So, it may be advisable not to take that risk. May be that’s why the yield is so high. Higher the risk, higher the return. Every person’s risk tolerance is different. Invest only if it meets your risk requirement. Thanks.
Hello Jigar,
My wealth management person has placed my money of 20 lakhs as a FCNR deposit for 5 yrs. the annual interest is 0.01%. However NRE FD is 5% for the same tenure. He has placed the deposit based on forward cover. I feel that this is risky and FD is a much safer approach.
Pls advise if FD is a much sensible approach. I will defnitely ask him for quaterly compounding rate for FCNR to compare with FD.
Regards
Baliga
1. You are getting wrong advice.
2. The FCNR FD rate is 2%+; NRE FD rate is 7%+ and FCNR + forward cover would be about 7-8%+. FCNR FD+forward can be an option only if you are okay to take currency risk as the maturity would be in INR only. Thanks.
Thanks a lot!
Jigar,
What will be the tax complications on Dollar currency policies taken while i was abroad.after being resident what should i do
1> whether i surrender my policy [it will impact huge financial loss]
2> all premium stands paid so i have the option to leave the policy abroad and take maturity at due time but what will be tax complications thereupon.
I would recommend you to please consult your agent to understand the implications. Please also give details of the policies and consult your CA. Without much detail of the policy document, conditions, restrictions, I won’t be able to guide you about whether to keep or surrender the policy as well as the tax implications as you mentioned it would result in huge loss if surrendered now. Thanks.
hello jigar sir,
thanks
the policies i am talking about are LIC International’s Insurance policies in US dollar denomination. currently these are not taxed when money is repatriated to India.in policy text also details regarding tax is not mentioned .
i want to know the income tax rules regarding the insurance policies taken by a NRI,.but he will get the
policy maturity value he will be resident by that time.
I would need to review the policies before I can give more specific answer. Generally, if it is not taxed on maturity, it would not be taxable if policy is kept until maturity. However, if the policy is pre-maturely withdrawn, it may be taxable if it results in a gain. If loss, may not be taxable. Thanks.
Hello,
I plan to create a FCNR with SBI bank.
Please advise, at this point is it a safe choice? And what maximum amount is safe in case of FCNR.
Please provide other details regarding the bank, rate of interest, currency, term of FD, objective, etc. for me to guide you better. You may email the details to jigar@nareshco.com. Thanks.
Hi,
I have an FCNR deposit getting matured in Oct 2018. Now i am a resident Indian. i wanted to book a forward contract along with hedging for the FCNR deposit. But the HDFC bank ( where i have FCNR deposits) said that resident indians can not book forward contract with FCNR deposit.
Is there any RBI circular ( FEMA circular) that resident indian ( NRI after coming for good and settled in India) can not book a forward contact for the FCNR deposits ( where the FCNR deposits are still in force and not yet matured).
Pl advice.
1. You may not find a RBI circular/notification that states that a resident Indian can not book a forward contract for FCNR deposits. But, the RBI circular/notification will states that an NRI can do that.
2. Also FCNR interest is exempt only for NRIs and Not Ordinary Residents. If your status is Ordinary Resident, the interest would become taxable for you. And, after maturity, you also need to do tax-efficient investment planning. Thanks.
Dear Jigar,
I have few questions :-
I am NRI as per fema since 1996 ~ 2018 (My overseas resident visa validity) and have no intention to settle in India for coming a few more years and my visa will be extended for another few more years.
In 2012~2013, 2014~2015 and 2015~2016 : I visited India and stayed more than 182 days, so I think my status under IT act was RNOR for 2012_13 and 2014_15 but ROR in 2015_16.
*I have not filed my RETURNS for all these years and my Income was as follows :-
A) Interest on NRE fixed deposits INR 20,00,000/ per year
B) Interest on FCNR fixed deposit USD 10,000/per year
B) Salary, which I get in UAE INR 12,00,000/ per year
C) Interest in NRO account Inr 20,000/ per year
D) Rent on shop in India Inr 1,35,000/ per year
*Is it okay, if I don’t file my return for 2012_13,2014_15 …..during RNOR status. As I don’t have taxable income more than INR250,000 in those years.
*Do I have to file my global income for 2015_16 *(I am NRI under fema but ROR under Income tax act), so will I be taxed for my SALARY in DUBAI *subject DTAA and Interest on FCNR deposits in India ?
If I don’t file under ROR status and having my OVERSEAS FOREIGN ACCOUNT, where i get my SALARY, will it come under BLACK MONEY ACT and treated accordingly.
*WHY INTEREST ON FCNR DEPOSIT CAN’T BE TREATED AS TAX FREE FOR “ROR” STATUS, AS SAME FCNR WAS CREATED FROM MY NRE (INR) FUNDS.
IT SHOULD BE TECHNICALLY TREATED TAX FREE UNDER 10(4)ii
++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Further I made a FORWARD COVER contract in Year 2013 for INR1,00,00,000 in JAPANESE YEN and which will mature in 2018 (during ROR status).
The banks (lot of banks) still mentioning that MATURITY FUNDS under FORWARD COVER in NRE deposits are tax free but HOW it will be treated as tax free.
What if at the maturity date, CONTRACT PRICE become higher than SPOT price, will it not be treated as LONG TERM CAPITAL GAIN ?…
How it will be showing/explaining in RETURNS, as tax free income. I have doubt. Can you please clarify.
Thanks
Prakash
1. If you stay in India for more than 182 days, you become resident under FEMA and you are not allowed to have an NRE/NRO account but only resident account. You may continue your FCNR FDs until maturity. Any interest on NRE account would become taxable. The interest on FCNR would become taxable only when your status is Ordinary Resident. Also, if you were remotely working in India for your company in UAE, the income may be taxable as you performed your service while physically present and India i.e. your income accrued in India.
2. I would file the income tax return as there may be a lot of complication relating to your status.
3. The foreign income and foreign assets are to be reported only for Ordinary Residents.
4. Please check your days as you could become Ordinary Resident (and not NOR) in 2018-19 if you stay in India could be more than 730 days in last 7 years (2012-2018). This could change a lot of things for you. I recommend you contact your CA and seek professional guidance. Thanks.
Hi Mr J Patel,
Federal bank gave me a NRI an option of depositing minimum 10lakhs deposit for max 5 years with an interest rate of 8.75% And that the returns would be tax free and fully repatriable. Where as the NRE FD is at 6.50% for above 2 years. I was going to deposit and I came across your blog. Could you please guide me in this matter.
Sorry forgot to mention that the Plan is called Federal Rupee plus plan
Please calculate whether the 8.75% is a yield or interest rate compounded quarterly, which is the case with NRE FD. 6.5% NRE FD rate translates into simple average return of 7.60%. If 8.75% is the annual yield on simple average, the bank FD rate (compounded quarterly) comes to 7.32% only. If you are okay with the same, you may invest. There are many options to invest in India for NRIs. Thanks.
Dear Sir,
Could you please provide us some of the best options for investment in India for NRIs.
Thank you.
Please contact us at nri@nareshco.com. Thanks.
Hi,
I am a NRI settled in UK. I have only invested in NRE FDs in India. Please keep me on your distribution list for any pertinent information for NRI’s.
Thanks
Jogesh Soni
Will do. Thanks.
Hi Mr. Jigar
I am looking for a secured investment in lnr 50 L NRE money better than present roi of around 7.5% in banks. Pl advise federal ba k says 9.5 percent 5 yr rupee plus. Any other suggestions.?
There is no better secured investments than NRE bank FD. There may be difference in FD rates among the bank. You may decide to split the FDs between private and nationalized bank. Thanks.
Hi
Thanks for very good article
I want to invest NRE FD with forward contract for 5 year, Bank offering return is 9.6%final yield where NRE FD is Just 7.5%
My Question is today I have NRI status but might be after 5 year or before maturity my status will not NRI or I am normal Indian Residence then In that condition what will be taxes liability, did I need to pay taxes on Interest earn on FCNR forward contract or not
I asked same Question to bank RM but look like they don’t have clear Idea on this
Thanks much in advance sir
Regards
Vijay
1. Please do not compare apple with orange. The rate/yield given by the bank person is the simple average return/rate and not the quarterly compounded rate, which is the case for bank FDs. After adjusting for the quarterly compounded rate, the yield would be very close – less than 0.5%.
2. The returning NRIs are allowed to maintain FCNR FDs until maturity and the interest would become taxable only when the status changed to “Ordinary Resident”. Thanks.
I am NRI . I am planning to settle after two years in India exactly 2020 end . Presently i am having 25 Lakhs in NRE FD which will be maturing by 2021 . further 25 lakhs will be maturing by 2025.
1) NRE FD interest calculated from 2015 to 2025 will be taxed at maturity on 2025 ? or any way to transfer into RFC to avoid tax while on maturity?
2) Now can i break 2021 and 2025 deposited amount and convert into in FCNR to retain until 2024 so that if i settled by 2020 end FCNR invest can be converted into FCNR RFC account at 2020 end ?
Pls give better suggestion how to exempt the tax my NRE deposit amount!
1. Interest accrues daily and you would include the interest on your FDs – whether NRE, NRO or FCNR every year based on the interest certificate from the bank. So no all interest would become taxable in the year of maturity.
2. No interest would be taxable until your return so you are okay for 2 years.
3. Breaking FD may involve some penalty so I would not recommend breaking now. Also, as I would think the interest on FD would have gone down, the renewal of FD can be at a lower interest only resulting in double loss.
4. As you plan to return in end 2020, a lot can change by then and recommend you to plan about 3-6 months before you are returning. Thanks.
Hi – Thanks for your article.
So can it be said that FCNR with forward cover is only for those who are willing to make a prediction on exchange rate movement (typically that Rupee will not become stronger than exchange rate agreed).
As such a prediction is out of understanding of most retail NRI investors, this investment should be completely avoided.
Would you agree?
And isn’t by tying FCNR with exchange rate movement, it is losing its FC characteristics to a large extent? Or Am I missing some benefits of this investment?
Also isn’t Bank always taking the position that Rupee will remain same or get weaker? That would be a huge risk on Bank’s balance sheet, won’t it be. Unless of course they are hedging that risk.
Yes, you are right. It is a marketing strategy for banks, where they earn more on commissions, contract premium and charges for a fractional benefit of investors who are willing to take the forex risk. I do not recommend unless there is 2% additional income compared to NRE FD when you compare both on quarterly compounded rate. Bank representatives would give you simple average rate of FCNR+forward cover as yield and compare it with NRE FD rate, which is a quarterly compounded rate to sell the product to show the additional income but it does not show the correct picture. Thanks.
Hello Jigar, very nice article.
I have been approached by my Kotak relationship manager as my previous FDs are maturing soon. She brought up RAP with an example. It would be great if you can provide your expertise comparing it with Kotak FD (390 days – 7.3%)
Tenure for 2 year
RAP – $30,000
$/INR Spot – 69.70
Principal Notional – INR 20,91,000
FCNR – 3.45%
Premium – 5.44
FWD Booking Rate – 75.14
Principal Notional – $32,124.18
On Maturity Indicative – INR 24,13,811
Cumulative Yield – 15%
Annualized Yield – 7.72%
While your cumulative yield is 15% and Annualized yield is 7.72%, your quarterly compounded yield comes to 7.24%, which is equivalent to the FD rate as FD rate is quarterly compounding.
Kotak NRE bank FD rate for 390 days to 24 months is available at 7.20% (http://www.kotak.com/bank/common/allrates.htm). Personally, I would not be interested as benefit is only 0.04% i.e. only Rs. 2039 over 2 year period. Instead, I would plan the investments so you earn more on after tax basis. Please contact us if interested. Thanks.
I am a NRI based in UAE. I have only invested in NRE FDs and forward FCNR contract premiums ( USD but maturity in INR) in India. Please keep me on your distribution list for any pertinent information for NRI’s.
Thanks
ANUP.
Unless there is additional benefit of 1.5%-2% on quarterly compounding rate, not annualized yield (comparing apple with apple), I do not recommend FCNR+Forward. Thanks.
Hello Sir,
I am on H1B and after 9 years, I am planning to return to India in 2020. I have ~150k in Shares, 30K cash, 30K in 401k. Since I have a feeling that my shares will probably improve in the future, i would like to not touch the shares at this moment and monitor it for another year or so.
I researched about the roth conversion ladder for 401k and other strategies to minimize the taxes/penalty. Also since my 401k amount is less, i am not worried much.
Coming to shares, I do understand that i will be in RNOR for GOI for 3 years starting 2020 and i will be NRA for USA starting from 2021 since i will not meet the 183 days requirement. Will this be the best combination for me to minimize the tax penalty?
1) What year would you advise for me if i have to liquidate the shares to minimize the tax from both the countries starting from 2020?
2) Also since I am flexible, what month would you recommend for me to depart USA permanently from TAX perspective?
Thanks,
Karthik
1. Investment in shares is a risky investments, so having just 1 year investment horizon is very very risky and I would recommend you slowly start liquidating shares now.
2. Tax comes only if there is income. If equity market goes down, there won’t be any income and the question about tax won’t arise.
3. I would recommend coming to India after October as your status would be non-resident for 2020-2021. Thanks.
I am NRI for past 19 years and planning to relocate to India.
I want to convert my existing NRE term deposits into Rupee Advantage Account [FCNR with forward contract].
Reason is simple. Once i come back next two years i will have RNOR status. so, i want to have current FCNR converted to RFC account and thus avoid tax for next two years.
But, worrying part is, whether i can avoid tax on the forward contract benefit? If cannot how this will be taxed? Please suggest. Thanks
1. While income tax is an important consideration, it should not be the sole criteria of investments. Taxable income (30% slab) of 10% (net 7%) would always be better than 3% tax free income.
2. Yes, you can invest in FCNR with forward cover. The FCNR FD interest would be exempt for 2-3 years depending on your return so only have max. of 2-3 year FD. Also, make sure you play your investments BEFORE few months (ideally in tax year prior to) moving back to India.
3. Yes, it would be worrying to think about taxation of forward contract benefit. However, practically, I have not noticed/seen anyone being asked / scrutinized about the same. Technically, as per IT act, “interest” includes hedging transaction charges on account of currency fluctuation. However, it is not clear how it is being interpreted.
4. If you need any help with investment planning, let us know. Thanks.
Hi Jigar,
I am a NRI. Kindly add me in your distribution list so that I can get regular updates about various NRI products.
Hi Jigar,
I am NRI and looking for investment options which make sense even after my coming back to India .please include me in your list if you share some financial instruments of interest to NRI.
Please contact us if you have any question or need guidance. We recommend planning for your investments from the day you decide to move back with some certainty.
I am 61 year old US citizen and hold an OCI card. I am planning my retirement. Should I consider investing in FCNR Forward? IDFC is giving around 9.65% interest if I lock for 5 years and 9% if I invest in NRE FD for 5 years. Please advice. Thanks
I would recommend investing in NRE bank FD for simpler compliance and reporting. Also, the NRE bank FD rate would be quarterly compounding so you may not have any additional benefit by going through FCNR+forward cover. Thanks.
Hi Jigar,
How safe is FCNR with forward cover? I mean if the bank fails, do I still get my capital back? I was told that since it is a contract done in currency market, it has nothing to do with bank’s liquidity.
Please clarify.
Thanks in advance.
Regards,
Chintan
Yes, the contract is in currency market; but I would think the counter party would be bank. If the contract turns negative and if the bank is not able to honor its agreement, it could be affected. And, ultimately, the money would eventually be deposited in the NRE bank account with the bank only. So solvency of bank is important. In India, only Rs. 1L is guaranteed by the deposit insurance. Thanks.
Dear Jigar,
Can you please advice on following:
I have FCNR deposits with Forward Cover in JPY with Yes bank.
In case I want to break this deposit due to prevailing market condition and capital of Yesbank , what will be the penalty.
Is it advisable to break or stay with FCNR deposit with yes bank.
Regards
1. You would need to understand the forward premium you would need to pay to break the same. I recommend that you contact the bank and understand the cost before making a decision.
2. Yes bank is like any other bank where the government guarantees insurance of upto Rs. 1L. I think you would be okay for now however, the amount of FD, % of FD with Yes vs other bank, % of FCNR FD compared to Total FD, tenure of FD (when is it maturing), forward premium, any other charges, etc. would need to be analyzed before I can recommend keeping or breaking the FD. Thanks.
Currently yes bank does not charges any conversion and gst fees on fcnr forward deposits.
But other banks like idfc charge conversion rate and gst.
My question is whether gst and conversion charges are really applicable. Since I get maturity amount in inr only so why should I pay conversion like in case of idfc
GST would apply to all the bank charges. The Yes bank may be giving you rate including GST and other bank rate excluding GST. Thanks.
As of today with NRE deposit rates coming in to 6% range do you still keep the same opinion as in 2013? NRE account does not get the advantage of USD appreciation. Forward plan would at least give you that growth albeit less. Say today at 1USD==71.xx Rs you have NRE rupee at 6.xx% for 3 years, where as forwards for FCNR can get you around 1USD=80.xxRs. Most forwards I checked give this rate for Nov 2022, so there’s a lost chance of gaining 80.xx-71.xx interns of foreign currency exchange.
Can you spell out comparison.
1. The NRE interest rates have come down to about 6.5%. Similarly, the FCNR interest rates have also come down to 2.5%, the forex forward premiums have also come down and still comparing “quarterly compounded rate of interest” of FCNR + Forward cover would be about 7% only.
2. The question is whether you want to take that additional risk of less liquidity and cost of cancelling forward cover if the forex goes against your position.
3. My advice is still valid. You may take the risk if the benefit of at least 1% (quarterly compounded rate) for HNIs.
4. For someone who wants to invest 10L, the benefit would only be 10,000 i.e. less than $12 a month for 1% benefit, which is not currently being available. The current extra return being offered is hardly 0.5% more when you compared QUARTERLY COMPOUNDED RATE. The bank manager only gives you the yield (simple average return) as comparison so be careful. It may not be worth the risk as mentioned in #2.
5. It is prudent to expect INR to depreciate against USD at the rate of about 3-4% annually. This is due to the interest rate differential in USD and INR (Bank FD in USD 2.5% vs. in INR 6.5%), inflation difference (in USA 1%, inflation in India 4-5%, etc.) So I would not be surprised if exchange rate is about 78-80 by Nov 2022. However, if the exchange rate goes above 80, you could be at a loss as you may not be able to reverse your forward contract and may only have your funds converted at 80.
6. If you read the contract and analyze the terms, you may realize that bank makes more money in conversion charges/fees and forward premium than what you make as additional interest over NRE FD. Thanks.
Hi Jigar,
I am a returning NRI in process declaring resident status and creating RFC and resident rupee deposits. I have one froward contract depsosit inIndusind bank that matures in 2021.
I dont want to break it as it may incur heavy charges. Can I instruct then that onmatirty it should be made an RFC even though I will be in resident status then and more over money will be in Ind rupees via JPY. Pl advise best way forward. Appreciate your help, thx
The FCNR FDs can be held until maturity so you are allowed to keep FCNR FD and as a result, the forward contract. Only NRE account to be closed and balance to be transferred to RFC account. Thanks.
Hi
Can you please comment if it’s advisable to go for FCNR Forward rates in IndusInd Bank?
CNR Forward Deposit yields we are offering through Long Term Forward Contracts against FCNR Deposits.
We are offering a net effective yield of 9.20% on 5 Years FCNR Forward Deposit in INR-JPY-INR. Maturity proceeds are totally tax-free and fully repatriable.
Please find below details on deposit of Rs 25Lacs invested for 5 Years tenure
25,00,000-9.20% -3,650,000 . They are offering 36.5 Lakh for 25 Lakh invested.
Is NRE FD better because the maximum rate is 7.2 %.
Regards
1. In your transaction the QUARTERLY COMPOUNDED RATE OF RETURN is 7.64%. The Simple interest return is 9.20%. The NRE FD gives you quarterly compounded rate. If the NRE FD is offering 7.2% and FCNR+Forward cover offers 7.64%, the difference is only 0.44%. Is it worth doing all these? You be the judge.
2. In simple terms, your NRE FD @ 7.2% will get you 3,571,869 after 5 years. Difference would be of about 78,000 in 5 years i.e. Rs. 15,625 per year on 25L of investment. Interested? Thanks.
Dear team,
While interest on FCNR deposits are exempt from income tax in India,
** taxation of gain due to entering FCNR forward contract is Taxable or non taxable.?????
For all practical purposes, if your status is NRI for the entire duration of FCNR FD including financial year in which FCNR FD matures, it would not be taxable in India. Thanks.
HDFC offers me Rupee Max FD @ 7.70% yield as on today on INR25L. Whereas the FD rate for 5 years on the NRE deposit for 25L is at 6.3%.
Is it advisable to go ahead with Rupeemax? Reading your many comments (from over the last few years) has confused me if I were to look at the present scenario in 2020 & considering a 5 year horizon upto 2025. Kindly advise…
I would think the Rupee Max return is average return not quarterly compounding return. The 6.3% NRE FD for 5 years would have yield of 7.34% (simple average annual return). Now, question is would you invest in Rupee Max if yield is 7.70% where you can get yield of 7.34% by investing in NRE Bank FD?
Also, if you are a resident of country that taxes Indian income (e.g. from US, UK, etc.), I would not recommend investing in bank deposits as you would not get any benefit of rupee depreciation. Thanks.
Thank you. All clear..