What are NRI Recurring Deposits?
NRI recurring deposits are savings instruments that allows Non-resident Indians to deposit a certain amount of funds on a monthly basis in a specific account. The deposits accrued in the account earn interest, and the total corpus generated is paid to the investor when the tenure ends.
RDs for NRI have the following two types:
NRO RD (Non-Resident Ordinary Recurring Deposit): The account holds funds in Indian currency, with the interest earned being taxable. It may suit NRIs who have an income source like a pension, stock dividends, or rent.
NRE RD (Non-Resident External Recurring Deposit): This account facilitates NRIs earning in foreign currency to hold the funds in Indian rupees. Fund repatriation is allowed, and the interest earned is tax-free.
Features of NRI RDs
Here are the key features of NRI RDs.
Fixed monthly deposits: Investors deposit a predetermined amount every month for the chosen tenure.
Interest: Both NRO and NRE RDs offer a certain interest, which often varies from one financial institution to another.
Fixed Returns: The interest offered are the returns investors obtain from RDs. The rate of interest is fixed and predetermined while opening the RD account.
Taxation: NRE RDs are exempt from taxes, but NRO RDs are taxable and the interest accrued is subject to taxes as per existing laws.
Repatriation: NRO RDs allow limited repatriation of funds, whereas NRE RDs facilitate complete repatriation of funds.
Things to keep in mind before choosing NRI RDs
To select the best RD for NRI, you should keep in mind the following things.
Repatriation and taxation rules: NRO RDs have some restrictions on fund repatriation, but NRE RDs are fully repatriable. The laws are also subject to changes as per the direction of the Reserve Bank of India and the Foreign Exchange and Management Act (FEMA).
Interest rate variations: The NRI RD interest rates depend on the bank or other financial institution with which the investor has opened the RD account.
Exchange rate risk: Funds in RD accounts are held in Indian currency. The changes in exchange rates and currency value impact the potential gains upon converting them back to foreign currency.
Financial goals: While selecting an RD, it is important that you consider your financial objectives and choose the one that aligns with your needs.
Documentation: It is essential to provide all the required documents, like identity proof, visa, and overseas residency proof, to ensure the account opening is smoother.
Conclusion
NRI recurring deposits give Non-Resident Indians a simple and steady way to grow their savings in India through fixed monthly contributions and guaranteed returns. By understanding how NRO and NRE RDs differ—especially in terms of repatriation, taxation, exchange rate exposure, and documentation—you can choose the option that best fits your financial plans. With regular deposits and assured interest rates, NRI RDs can be a dependable way to build wealth gradually and consistently.
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