FCNR bank accounts have always been an effective investment tool for NRIs in India. With the coming of Union Budget 2019 and recent regulatory changes, the FCNR investment route has become one of the most lucrative options.
Interest rates have been revised. It has been proposed to merge NRI portfolio investments with foreign portfolio investment (FPI). This will not only encourage increased NRI investment in equities but also in bank accounts with assured returns. FCNR accounts are one of the key investment options in such a case. If you are investing in realtly in India do not forget to read the article on "Investing in Property in India".
Let’s find out everything about FCNR accounts including their benefits and constraints so that you are able to make an informed decision when investing in India.
A Foreign Currency Non-Resident (FCNR) bank (B) account, also sometimes known as FCNR(B)), is a term deposit account that allows you to transfer your foreign income to India in the same currency as your resident country. This helps you to effectively hedge against exchange rate risks. According to RBI guidelines, any Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) can open an FCNR account in India. On a change in residential status, FCNR (B) deposits may be allowed to continue till maturity at the contracted rate of interest.
Among the many account choices available to NRIs such as NRO and NRE, FCNR (B) accounts are particularly attractive because they are the only ones where you can invest in your resident currency. In case you wish to withdraw your funds, you can get back exactly what you invested without being penalized twice for exchange rate fluctuations.
According to the latest RBI circular in October 2011, FCNR permitted currencies are the ones that are freely convertible. These include the US Dollar, Pound Sterling, Euro, Japanese Yen, Canadian Dollar, Australian Dollar, Swiss Franc, Singapore Dollar, Danish Krone, and Hong Kong Dollar among others.
Interest from FCNR deposits is exempt from Indian income tax.
Both principal and interest in FCNR accounts are freely repatriable. You can do it either by internet banking or through the branch.
An FCNR loan is a loan in foreign currency that is availed by NRIs or Indian corporates against an FCNR deposit at select Indian banks according to RBI guidelines.
It is possible to utilize your FCNR (B) deposits and raise funds against them both in Indian and foreign currencies. FCNR loans are usually available to both corporate and non-corporate clients.
Ideally, you can avail a loan against your FCNR deposit anywhere in the world. However, banks may have different policies regarding the repayment of these loans. You will have to check on these policies before applying.
An NRO and NRE accounts are both rupee-denominated account whereas an FCNR account is a foreign currency account. You can only open term deposits with FCNR accounts. Through the NRE/NRO route, you can open Savings, Current, Recurring, and Fixed Deposits. While NRE is a Tax-free and freely repatriable account like an FCNR. NRO is taxable and only the interest after taxes is repatriable. Know more differences between an NRO and NRE.
The benefits of holding an FCNR account are numerous.
Holding an FCNR account also comes with a few disadvantages as listed below.
Interest rates for FCNR deposits vary with the currency. FCNR rates can be as low as 1.3% for GBP and as high as 3% for USD. Additionally, FCNR rates can vary with the bank and the tenure of the deposit. Make sure you take all these factors into account when determining the right fit for you.
The minimum tenure of an FCNR deposit is 1 year and the maximum is 5 years. If you withdraw within a year, no interest is paid. If it is withdrawn within the tenure, a penalty may or may not be levied depending on the bank.
It is important to understand that you should always invest your hard-earned money with a reputable bank especially when it is a fixed deposit that you cannot withdraw as and when you like. The bank needs to have the credibility that it can pay you back after the tenure is over.
A number of banks in India offer FCNR accounts to NRIs and PIOs. Here are the top few;
You can open an FCNR account by sending remittance from overseas, by internet banking if you already have NRE or NRO accounts, or by sending or submitting a request to the branch directly.
You can open joint FCNR accounts with fellow NRIs. As part of foreign exchange liberalization, you can also open FCNR accounts with Indian residents who are your close relatives.
You can transfer funds to your FCNR account through any of the following channels.
You will require the following documents to open an FCNR account.
These are the salient points that you need to keep in mind before opening an FCNR account. It is a good option if you are looking to avoid exchange rate risks and earn a decent tax-free return while living abroad. If you are wondering what is the best way to send money to India, simply click, compare, and send on CompareRemit.